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24 August 2016

Asia Pacific/Singapore
Equity Research
Real Estate Management & Development

Global Logistic Properties


(GLPL.SI / GLP SP)
Rating UNDERPERFORM
Price (23 Aug 16, S$) 1.92 INITIATION
Target price (S$) 1.65
Upside/downside (%)
Mkt cap (S$/US$ mn)
-13.8
9,277 / 6,866
No respite in sight
Enterprise value (US$ mn) 10,491
Number of shares (mn) 4,844 ■ We initiate coverage on GLP with an UNDERPERFORM rating and a TP of
Free float (%) 55.3 S$1.65, implying 14% downside. Asset valuations are likely to be supported by
52-wk price range (S$) 2.37-1.60
ADTO-6M (US$ mn) 23.5
a broader cap rate compression given low interest rates. However, near-term
*Stock ratings are relative to the relevant country benchmark. earnings risks (CS: 17% below consensus), uncertainty over GLP's strategic
¹Target price is for 12 months. direction and a lack of rerating catalysts are likely to result in downside risks.
Research Analysts
Louis Chua, CFA ■ Market leader…but does size matter? While the long-term case for growth
65 6212 5721 in the Chinese logistics facilities market is well flagged, we believe the
louis.chua@credit-suisse.com
degree of undersupply of modern logistics is likely overestimated. Based on
Nicholas Teh
our proprietary bottom-up analysis, we expect ample supply growth of 42% in
65 6212 3026
nicholas.teh@credit-suisse.com 2016 from just major players alone, and see mounting risks of oversupply in
Daniel Lim the near term amid moderating demand. GLP's dominant scale is supportive
65 6212 3011 of its access to land, funding, and the ability to tap the "network effect". Yet,
daniel.lim@credit-suisse.com
GLP's competitors have nonetheless been able to grow supply at 27% CAGR
over FY10-16, supported by sizeable liquidity-seeking logistics assets.
■ Downside risks to growth expectations. Effective rents have remained
close to FY12 levels, and the shift towards lower-tier cities in China will
continue to pose a drag on portfolio rents. Given further signs of a slowdown,
we believe either of occupancies or development starts will likely disappoint,
and estimate 2.2 mn sq m of starts in China in FY17 vs management
guidance of 2.6 mn sq m. With GLP's earnings remaining largely flat between
FY11 and FY16, we expect only a modest 8% earnings CAGR to FY19.
■ Valuation not compelling, catalysts lacking. We derive our S$1.65 TP based
on a 32% discount to RNAV (1 sd below historical average), which we deem fair
given the weak sentiment and downside risks to earnings and NAV. Our TP
implies a P/E of 26x, in line with the historical average. Aggressive share buy-
backs have created some near-term share price support, but we see little
upside surprise through capital recycling. Key risks include adverse currency
movements, competition, management departures and macroeconomic risks.
Share price performance Financial and valuation metrics
Year 3/16A 3/17E 3/18E 3/19E
Revenue (US$ mn) 777.5 846.9 956.9 1,067.6
EBITDA (US$ mn) 403.5 503.7 576.5 640.3
EBIT (US$ mn) 391.7 489.8 562.1 626.2
Net attributable profit (US$ mn) 240.9 229.2 281.5 306.5
EPS (CS adj.) (US$) 0.05 0.05 0.06 0.06
Change from previous EPS (%) n.a. - - -
Consensus EPS (US$) n.a. 0.06 0.06 0.09
EPS growth (%) 21.0 (4.9) 22.8 8.9
The price relative chart measures performance against the P/E (x) 28.2 29.7 24.2 22.2
FTSE STRAITS TIMES IDX which closed at 2,850.43 on Dividend yield (%) 3.1 3.4 3.7 3.9
23/08/16. On 23/08/16 the spot exchange rate was EV/EBITDA (x) 26.3 20.5 19.2 18.5
S$1.35/US$1 ROE (%) 2.7 2.5 3.0 3.2
Performance 1M 3M 12M Net debt/equity (%) 28.5 25.5 30.1 34.3
Absolute (%) -3.0 7.3 -6.6 NAV per share (US$) - 1.80 - -
Relative (%) 0.2 4.3 -6.8 Disc./(prem.) to NAV (%) - 21.5 - -
Source: Company data, Thomson Reuters, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
24 August 2016

Focus charts and tables


Figure 1: While "modern" logistics facilities are in Figure 2: Ample supply pipeline from major players
short supply, availability is subjective, in our view alone, with supply growth of > 40% in 2016
(mn sqm)
700 +9%

600

500

400

300 ? 600
? 550
200
+85%
100
13 24 120
0
Major providers Modern logistics facilities Total market supply of logistics
facilities
FY13 FY16

Source: China Association of Warehouses and Storage, GLP estimates, Credit Suisse Notes: (1) Completed GFA as at Dec-2015. (2) GFA under development expected to
estimates complete in 2016. (3) Total GFA by Dec-2016. (4) Based on 2016 GFA. (5) Total potential
pipeline as at Dec-2015, including land (6) vs GFA as at Dec-2015.
Source: China Logistics Property Prospectus, Company data, Credit Suisse estimates
Figure 3: GLP's competitors have grown supply at Figure 4: GLP's share of e-commerce as % of leased
the same pace, despite low availability of land area in China flat since FY14, despite strong growth
(mn sqm)
100%
30.0
GLP: 29% CAGR 90%
25.6
Major players ex-GLP: 27% CAGR 80%
25.0
70%
20.0 10.7 75% 76% 74%
16.7 60% 80%
85%
96% 91%
50%
15.0 12.7
6.8 40%
9.3
10.0 7.5 5.1 30%
6.6
5.8 3.6 14.9
2.9 20%
5.0 2.6 9.9
2.6 7.6 25% 24% 26%
5.7 10% 20%
3.2 4.0 4.6 15%
4% 9%
0.0 0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY10 FY11 FY12 FY13 FY14 FY15 FY16

GLP ex-GLP e-commerce Others

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 5: GLP only 12% of JD.com's logistics area— Figure 6: Expect rents and lease ratios in China to
network effect not an exclusive competitive edge continue facing downward pressure…
100.0% 1.2 92%
90.0% 91%
1.1
80.0% 90%
1.0
70.0% 89%
60.0% 79.4% 79.2% 0.9 88%
93.3%
50.0% 0.8 87%
40.0% 86%
0.7
30.0% 85%
20.0% 0.6
84%
16.1% 12.4%
10.0% 0.5 83%
6.7% 8.4%
1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17
0.0% 4.5%
CY2013 CY2014 CY2015

JD.com owned GLP Other lessors Effective Rents (RMB/sqm/day) Lease ratio - RHS

Source: Company data, Credit Suisse estimates Note: change in basis of disclosing effective rents from 2QFY15, while 1QFY17 rents impacted
by VAT reform (flat QoQ otherwise). Source: Company data, Credit Suisse estimates.

Figure 7: …hence a muted core PATMI outlook Figure 8: CS RNAV-based TP of S$1.65


(US$ mn) FY17E GAV
400 Portfolio pro-rata valuation: US$ mn S$ mn S$/share % of GAV
350 Current portfolio 11,671 15,980 3.33 82%
350 Development pipeline 1,878 2,571 0.54 13%
314 306
300 279 281 Management fee (12x multiple) 656 899 0.19 5%
247 Total GAV 14,205 19,449 4.05 100%
241
250 229 Net Debt (including perpetuals) 5,361 7,340 1.53
201 Corporate costs (10x multiple) 322 441 0.09
200
RNAV 8,522 11,669 2.43 100%
150 - China 5,226 7,156 1.49 61%
- Japan 2,169 2,970 0.62 25%
100
- Brazil 47 64 0.01 1%
50 - US 745 1,021 0.21 9%
- Others 334 458 0.10 4%
- Discount to RNAV: 32%
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Target Price: 1.65

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Global Logistic Properties


(GLPL.SI / GLP SP) 2
24 August 2016

No respite in sight
Explosive supply a near-term concern
Aggressive supply While the long-term case for consumption-led growth in China's logistics facilities market is
expansion (>40% in well flagged, we see downside risks from a broader macro slowdown in the near term.
2016) at a time of Further, while modern logistics facilities only amounted to 2% of supply in FY13, this has
moderating demand is a since been assessed to be 120 mn sq m or 20% of total as at FY16. Hence, we believe
cause for concern the degree of undersupply could be overestimated. Based on our analysis, we expect
ample supply from just major players alone, with over 40% supply growth in 2016, bringing
total GFA to 30 mn sq m.

Market leader, but in an increasingly crowded space


Competition in China is GLP has market-leading positions across China, Japan, the US and Brazil. China represents
intensely heated, where GLP's key region at 47% of PATMI ex-revaluations and 57% of reported NAV in FY16. GLP's
GLP's peers have been dominant scale is supportive of critical success factors of: (1) access to land, (2) access to
able to match its pace of funding and (3) ability to generate the "network effect". Yet, barriers to entry appear
growth, with rising risks surmountable, with GLP's competitors being able to grow supply at a 27% CAGR over FY10-
from customers going FY16, in line with GLP's 29% CAGR. While e-commerce demand is still a bright spot for GLP,
upstream this has stabilised at c.25% of total leased area in China since FY14. Using JD.com, GLP's
second largest customer in China as a case in point, we estimate GLP only represented
c.12% of its total area, with close to 80% of JD.com's requirements leased from others. This is
despite GLP's far larger scale of operations, with heightened risks of portfolio vacancy in the
future as customers move towards self-constructed facilities.

Downside risks to growth expectations


We expect only 2.2 mn sq Effective rents in FY16 have remained close to FY12 levels, despite steady same-property
m of starts in FY17E vs rental rate growth of c. 5% in recent years. We believe this is due to GLP reporting its
GLP's guidance of 2.6 mn rents and lease ratios for stabilised properties only. In addition, the shift towards lower-tier
sq m. Our FY17-19E core cities in China will continue to pose a drag on portfolio rents; we estimate completed GFA
PATMI estimates are 3- in tier 1 cities declined from 49% in FY11 to 25% in FY16. Given further signs of a
17% below consensus slowdown in China, we believe either occupancies or development starts will likely
disappoint. We expect only 2.2 mn sq m of starts in FY17E vs management guidance of
2.6 mn sq m. Our FY17E core PATMI estimates are 17% below consensus (-5% YoY).
Despite reporting 1Q FY17 PATMI ex-revaluations of US$39 mn (-32% YoY, partly
impacted by FX losses), consensus continues to expect 15% YoY growth in FY17E. We
expect lease ratios to continue declining to 83% at the end of FY17, with the divestment of
0.3 mn sq m of properties in Japan a further drag on core earnings. We note that headline
earnings and PATMI ex-revaluations have remained largely flat between FY11 and FY16,
and expect a modest 8% earnings CAGR over the next three years.

Catalysts lacking; initiate with UNDERPERFORM


We initiate on GLP with While valuation for GLP is undemanding, at 21% discount to RNAV and 0.73x P/B, we
an UNDERPERFORM believe it will take time for GLP to be vindicated, unless management is able to deliver on
®
rating. While valuations sustainable earnings and NAV growth. CS HOLT® notes that while GLP's CFROI was
are undemanding, we 3.2% in FY16, the stock is priced for CFROI to reach a high of 5.9% over the next five
are yet to see meaningful years. If CFROI remains at 4% over the next five years, its fair value range of S$1.35 to
growth in earnings and S$1.47 represents -20% to -30% downside risk. Amid high expectations, asset valuations
NAV are likely to be supported by broader cap rate compression, given low interest rates.
However, near-term earnings risks, uncertainty over GLP's strategic direction and a lack of
rerating catalysts are likely to result in downside risk. Hence, we initiate coverage on GLP
with an UNDERPERFORM rating and a TP of S$1.65. Aggressive share buybacks have
created some near-term share price support, but we see little upside surprise through
capital recycling. Further, a potential China income fund and China HoldCo IPO are
unlikely to rerate GLP, but contribute to downside risks to earnings instead.

Global Logistic Properties


(GLPL.SI / GLP SP) 3
24 August 2016

Global Logistic Properties (GLPL.SI / GLP SP)


Price (23 Aug 2016): S$1.92; Rating: UNDERPERFORM; Target Price: S$1.65; Analyst: Louis Chua
Earnings drivers 03/16A 03/17E 03/18E 03/19E Company Background
Revenue - China 531.0 557.0 655.4 758.0 Global Logistic Properties is a global logistics facilities provider, with
Revenue - Japan 178.7 206.6 217.1 225.2 market leading positions in China, Japan, Brazil and the US.
Revenue - Brazil 8.58 7.02 7.10 7.10 Blue/Grey Sky Scenario
Revenue - US 59.21 76.28 77.26 77.26
Income statement (US$ mn) 03/16A 03/17E 03/18E 03/19E
Sales revenue 777 847 957 1,068
EBITDA 403 504 576 640
EBIT 392 490 562 626
Net interest expense/(inc.) 101 159 142 168
Recurring PBT 1,307 1,054 1,049 1,009
Profit after tax 997 795 746 688
Revaluations 0 0 0 0
Reported net profit 719 606 576 530
Net profit (Credit Suisse) 241 229 281 306
Balance sheet (US$ mn) 03/16A 03/17E 03/18E 03/19E
Cash & cash equivalents 1,025 1,664 1,892 2,153
Current receivables 548 632 735 833
Inventories 0 0 0 0
Properties under development 0 0 0 0
Other current assets 4,895 0 0 0
Current Assets 6,467 2,297 2,627 2,987
Property, plant & equip. 53 61 60 58
Properties under development 0 0 0 0
Investment Properties 13,024 14,631 16,037 17,371
Investment in Associates/JV 1,954 2,421 2,601 2,762
Intangibles 466 458 456 453
Other non-current assets 1,165 1,221 1,221 1,221
Our Blue Sky Scenario (S$) 2.49
Total assets 23,129 21,088 23,001 24,853
Our blue sky valuation of S$2.49 factors in the following
Current liabilities 5,012 2,103 2,472 2,834
Total liabilities 9,969 7,555 8,977 10,407 assumptions: 50 bp cap rate compression across all its geographical
Shareholders' equity 8,888 9,214 9,534 9,798 markets, 10% appreciation of GLP's operating currencies of CNY,
Minority interests 4,272 4,320 4,490 4,648 JPY and BRL against USD, GLP managing 25% higher completions
Total liabilities & equity 23,129 21,088 23,001 24,853 than our base case estimates. In such a scenario, we assume GLP
trades up to its historical average discount to RNAV of 19%.
Cash flow (US$ mn) 03/16A 03/17E 03/18E 03/19E
EBIT 392 490 562 626
Net interest 0 0 0 0 Our Grey Sky Scenario (S$) 1.07
Tax paid (32) (38) (39) (42) Our grey sky valuation of S$1.07 factors in the following
Working capital (24) (129) 56 53 assumptions: 50 bp cap rate expansion across all its geographical
Other cash and non-cash items 83 18 14 14 markets, 10% depreciation of GLP's operating currencies of CNY,
Operating cash flow 418 341 593 652 JPY and BRL against USD, GLP managing 25% less completions
Capex (1,130) (986) (968) (956) than our base case estimates. In such a scenario, we assume GLP
Free cash flow to the firm (711) (645) (375) (304) derates to its historical trough discount to RNAV of 45%.
Investing cash flow (4,937) 696 (956) (943)
Dividends paid (190) (285) (225) (237) Share price performance
Financing cash flow 4,289 (404) 591 552
Total cash flow (230) 633 228 261
Adjustments (191) 6 0 0
Net change in cash (421) 640 228 261
Per share 03/16A 03/17E 03/18E 03/19E
Shares (wtd avg.) (mn) 4,801 4,801 4,801 4,801
EPS (Credit Suisse) (US$) 0.05 0.05 0.06 0.06
DPS (US$) 0.04 0.05 0.05 0.06
BVPS (US$) 1.86 1.93 1.99 2.05
NAV per share (US$) n.a. 1.80 n.a. n.a.
Earnings 03/16A 03/17E 03/18E 03/19E
Growth (%)
Sales revenue 9.8 8.9 13.0 11.6
EBIT (3.2) 25.1 14.8 11.4
EPS 21.0 (4.9) 22.8 8.9 The price relative chart measures performance against the FTSE STRAITS
Margins (%) TIMES IDX which closed at 2,850.43 on 23-Aug-2016
EBITDA 51.9 59.5 60.2 60.0 On 23-Aug-2016 the spot exchange rate was S$1.35/US$1
EBIT 50.4 57.8 58.7 58.7
Valuation (x) 03/16A 03/17E 03/18E 03/19E
P/E 28.2 29.7 24.2 22.2
P/B 0.76 0.74 0.71 0.69
Dividend yield (%) 3.1 3.4 3.7 3.9
EV/Sales 13.6 12.2 11.6 11.1
EV/EBITDA 26.3 20.5 19.2 18.5
EV/EBIT 27.1 21.0 19.7 18.9
ROE analysis (%) 03/16A 03/17E 03/18E 03/19E
ROE 2.7 2.5 3.0 3.2
ROIC 1.9 2.2 2.3 2.3
Credit ratios 03/16A 03/17E 03/18E 03/19E
Net debt/equity (%) 28.5 25.5 30.1 34.3
Net Debt/EBITDA (x) 9.28 6.84 7.31 7.74
Source: Company data, Thomson Reuters, Credit Suisse estimates
s
4
24 August 2016

Explosive supply a near-term concern


Whilst long-term drivers We believe the long-term drivers of the Chinese logistics facilities market are intact and
are intact, we expect well understood; yet, this has also resulted in a rapid supply expansion in the near term.
rapid supply expansion in Today, modern logistics facilities amounted to 120 mn sq m, c.20% that of the total market
the near term (supply supply of logistics facilities. Nevertheless, we believe the classification of logistics facilities
growth will likely exceed as "modern" remains a subjective issue, in our view, and hence the degree of undersupply
40% in 2016) could potentially be overestimated. Based on our proprietary bottom-up analysis, we
expect ample supply additions from just major players alone, with supply growth likely to
exceed 40% in 2016, bringing total GFA from 21 mn sq m in 2015 to 30 mn sq m in 2016.
From two facilities in June 2015, the new entrant China Vanke has now amassed a total
portfolio GFA of 1.25 mn sq m, indicative of the mounting risks of oversupply near term.
Simultaneously, we view downside risks from a broader macro-economic slowdown near
term, with both real GDP and private consumption moderating the near-term demand
outlook. While e-commerce continues to be a bright spot for demand, we expect the pace
of e-commerce growth to halve from a CAGR of 51% over the past five years to 21% up to
2019E, given the base effect and a moderating online retail sales penetration rate. Risks
to leasing demand could also materialise through a continued trend towards self-owned
warehouses by e-commerce players, including JD.com, Vipshop and Alibaba, with rental
growth capped by the razor-thin margins of e-commerce players.
Unsurprisingly, a combination of slowing demand and ample supply has resulted in a trend
of slowing rental growth, with most cities in China likely to see flat rental growth in the next
six months, including the tier 1 cities of Beijing and Shanghai.

Rapid supply expansion


Modern logistics facilities still in short supply?
In China, the available supply of logistics facilities is estimated to be scarce, as the warehouse
area per capita is only 1/13th that of the US. Modern logistics facilities in particular, are
believed to be significantly in short supply and in high demand. These are characterised by
large floor plates, high ceilings, wide column spacing, spacious and modern loading docks as
well as enhanced safety systems and other value-added features.
In FY13, based on the China Association of Warehouses and Storage data and GLP
estimates, there was little known supply of modern logistics facilities outside that of the
major providers. This only amounted to 2% of supply in FY13, but this has since been
assessed to be 120 mn sq m as at FY16, c.20% that of the total market supply of logistics
facilities. Hence, we believe the classification of "modern" logistics facilities remains a
subjective issue, in our view, and therefore the degree of undersupply could potentially be
overestimated.

Figure 9: Key features that characterise modern logistics facilities

Source: Company data

Global Logistic Properties


(GLPL.SI / GLP SP) 5
24 August 2016

Figure 10: While "modern" logistics facilities are Figure 11: …availability of supply is a subjective
still significantly underpenetrated in China… issue, in our view
Warehouse stock: total area (sqm) per capita (mn sqm)
700 +9%
6.0
5.5
600
5.0
500

4.0 400
13x
300 ? 600
3.0 ? 550
200
2.0
+85%
100
13 24 120
1.0
0.4 0
Major providers Modern logistics facilities Total market supply of
0.0 logistics facilities
China US FY13 FY16

Source: Company data, CBRE estimates Source: China Association of Warehouses and Storage, GLP estimates, Credit Suisse
estimates

Explosive supply growth to continue


In any case, over the past few years, we believe there has been a significant pipeline of new
supply being developed. According to CBRE, whilst 2010 and 2011 saw net absorption
exceed new supply for warehouses, new supply has consistently outpaced incremental
demand since 2012. CBRE estimates current vacancy rates at 16.1% in 1H16.
We note however, that different cities and provinces in China have seen a significant
range in supply growth. For instance, Hefei, Xi'an, Wuhan, Shenyang, Dongguan and
Chongqing have seen supply more than double from 2011 to 2015, based on JLL
estimates. On an absolute basis however, cities such as Shanghai, Tianjin and
Guangzhou have seen over 1 mn sq m of new supply of logistics facilities over 2014-15.

Figure 12: Rapid expansion of Grade A logistics Figure 13: With new supply growth constantly
stocks, based on JLL estimates outpacing demand growth
(mn sqm)
Foshan 4.0 30.0%
Hefei
Dalian
Nanjing
Xi'an 3.0
Qingdao 20.0%
Wuhan
Shenyang
Dongguan 2.0
Chongqing
Suzhou
Beijing 10.0%
Chengdu 1.0
Guangzh…
Shenzhen
Tianjin
Shanghai 0.0 0.0%
0 1 2 3 4 5 6 2009 2010 2011 2012 2013 2014 2015 1H16
2011 2014 2015 (mn sqm) New supply Net Absorption Vacancy rates (RHS)

Source: JLL Source: CBRE

Looking forward, new supply for 2016 relative to existing stock as at 2015 will be greatest
in Chengdu, Wuhan, Chongqing, Shenyang, Dalian, Nanjing and Wuxi. Wuhan,
Global Logistic Properties
(GLPL.SI / GLP SP) 6
24 August 2016

Chongqing and Shenyang, in particular, are likely to see incoming supply growth of more
than 50% relative to existing supply. On an absolute basis, supply additions will mainly be
in Shanghai, Chengdu, Wuhan and Chongqing.

Figure 14: Stock and pipeline of new warehouse supply in China


(mn sqm)
6 70%

5 60%

50%
4
40%
3
30%
2
20%

1 10%

0 0%
Shanghai Suzhou Shenzhen Tianjin Chengdu Beijing Wuhan GuangzhouChongqing Shenyang Dalian Nanjing Qingdao Wuxi Ningbo Hangzhou

Stock in 2015 Pipeline supply in 2016 Supply/Stock ratio

Source: CBRE

Ample supply pipeline from major players alone


We believe new warehouse supply is attributable to a combination of: (1) local non-
logistics players diversifying into the logistics space, including leading Chinese residential
developer, China Vanke, and insurance firm, Ping An; (2) established global logistics
providers including Goodman and Prologis, as well as (3) local logistics-focused new
entrants funded by real estate private equity firms such as The Carlyle Group; for
example, China Logistics Properties and e-Shang Redwood.
Based on our estimates, Figure 15: Major logistics players in China
supply is likely to exceed GFA ('000 sq m)
40% in 2016, bringing Logistics provider Completed (1) Under Total (3) Market Pipeline under Potential growth to
total GFA from 21 mn sq development (2) share(4) development (5) current GFA (6)
m to 30 mn sq m in 2016 GLP 12,760 2,830 15,590 52.7% 24,420 191%
Goodman 1,900 700 2,600 8.8% 2,700 142%
CNLP (Yupei) 968 1,124 2,092 7.1% 5,657 584%
Blogis 1420 451 1,871 6.3% 451 32%
Mapletree 830 473 1,606 5.4% 473 57%
e-Shang Redwood 854 574 1,428 4.8% 1,731 203%
Prologis 914 389 1,303 4.4% 389 43%
Ping An 161 848 1,009 3.4% 5,989 3720%
Vailog 537 470 1,007 3.4% 4,959 924%
Vanke 204 547 751 2.5% 1,050 516%
IDI Gazeley 224 85 309 1.0% 85 38%
Total 20,771 8,491 29,566 100% 47,905 231%
(1) Completed GFA as at Dec 2015. (2) GFA under development expected to complete in 2016. (3) Total
GFA by Dec 2016. (4) Based on 2016 GFA. (5) Total potential pipeline as at Dec 2015, including land
reserves. (6) vs completed GFA as at Dec 2015.
Source: China Logistics Property Prospectus, Company data, Credit Suisse estimates.

Based on publicly available data, we have aggregated the current supply of modern
logistics facilities in China from major players and an estimate of pipeline supply under
development. Based on estimates of GFA under development expected to complete in
2016, supply is likely to exceed 40% in 2016, bringing total GFA from 21 mn sq m to 30
Global Logistic Properties
(GLPL.SI / GLP SP) 7
24 August 2016

mn sq m in 2016. Including the potential pipeline comprising land bank and land reserves,
we estimate supply from major players alone can more than double to over 47 mn sq m.
In addition, several new entrants have significantly expanded their portfolio within a very
short period. For instance, China Vanke opened its first two logistics facilities with over
175,000 sq m in June 2015, and since then has grown its total portfolio to over 1.25 mn sq
m within the span of a year. We caution that our analysis likely underestimates the extent
of incoming supply given the lack of disclosures; but would nevertheless be indicative of
the mounting risks of oversupply near term.

Slowing demand growth environment


Shift towards consumption-led growth to drive long term demand…
Longer term demand still We believe China likely still has pent-up demand for high quality warehouses and
positive as domestic prospects are still positive in the long term, given the government's push towards
consumption as a consumption-led growth. However, we believe that demand could disappoint in the near
percentage of GDP in term given slowing growth prospects, and that incremental demand may be moderate in
China is significantly the short to mid-term.
below the US, Japan and
Germany Based on World Bank estimates, China's domestic consumption as a proportion of GDP
as at 2014 is only at 51.1% (Figure 16), when compared to developed economies such as
the US, Japan and Germany. This has declined from c.58% in 2003, as a result of
investment-led growth over the past decade. Given this, demand for China logistics is
likely intact in the long run, as the gap between China and developed markets like the US
eventually converge.
In China, the logistics space penetration rate (logistics space per capita) is only at 0.4 sq
m per capita, 1/13th of the US (5.5 sq m per capita) as shown below in Figure 18. As China
continues to urbanise, we expect the need for efficiency and hence demand for modern
logistics facilities to continue in the long term.

Figure 16: Domestic consumption as % of GDP still Figure 17: CS forecasts suggest domestic
low for China consumption as % of GDP for China will increase
(%)
8.5
90
8.16
85 8.0
82.7 7.68 7.82
80
79.0 7.5
75
73.4 6.9
7.0
70
6.5 6.5
65 6.5

60 6.0

55
51.1 5.5
50
5.0
45 2015E 2016E 2017E
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CH Growth in Real Private Consumption (YoY%)
China Japan United States Germany CH Real GDP Growth (YoY%)

Source: World Bank Source: Credit Suisse estimates

Global Logistic Properties


(GLPL.SI / GLP SP) 8
24 August 2016

Figure 18: China’s logistics penetration is still fairly Figure 19: China’s urbanisation rate
low
Logistics space: GFA (sqm) per capita Mn
1,400 60%
6
5.5 56%
1,200
50%
5
4.5 1,000

3.8 800 40%


4

600 30%
3
400
20%
2 200

0 10%
1
0.4 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
0.3
Total population Urban population
0
Brazil China Japan HK US % of urban population (RHS)

Source: CBRE, company data Source: CEIC

…but downside risks from broader macro-economic slowdown near


term
Risks from a macro- Despite positive longer-term characteristics for China logistics, the macro-economic
economic slowdown environment in China has been slowing, with growth in real GDP and real private
could impact demand in consumption moderating. Furthermore, according to our China market strategist, Vincent
the near term Chan, despite relatively tight labour supply, wage growth has also seen a slowdown (see
report here).
The CS Economics team recently lowered its GDP growth forecast to 6.5% for both 2016
and 2017. Private investment growth, ex-real estate, has fallen sharply and we expect it to
weaken further, with government spending set to slow sharply absent new fiscal stimulus,
while the export outlook has deteriorated.

Figure 20: Slowdown in GDP growth and private Figure 21: …with similar trends in nominal wage
consumption demand growth
(%) (%)
14 16

12 14

10 12

8 10

6 8

4 6

2 4

2
0
2010 2011 2012 2013 2014 2015 2016E 2017E 0
China Real GDP Growth (YoY%) 2010 2011 2012 2013 2014 2015 2016E 2017E

China Growth in Real Private Consumption (%) China Nominal Wage Growth (YoY)

Source: Credit Suisse estimates Source: Credit Suisse estimates

Global Logistic Properties


(GLPL.SI / GLP SP) 9
24 August 2016

Continued growth in e-commerce and 3PLs; albeit at a slower pace


According to DTZ/Cushman and Wakefield (C&W), demand for logistics space has come
mainly from 3PLs (third-party logistics firms) and e-commerce businesses. The Gross
Market Value (GMV) of the Chinese online shopping market has seen a strong CAGR of
51% over the past five years. However, we expect the pace of growth to continue tapering
down with CAGR of only 21% up to 2019, as online retail sales penetration rates start to
moderate.
Demand from 3PLs, however, is projected to still grow steadily at 8% p.a., and could still
have room to grow further, given expenditure on 3PLs as a proportion of total logistics
costs is below more mature economies, such as the US, Europe and Japan.

Figure 22: GMV of China online shopping market Figure 23: Online retail sales penetration in China
2011-2018
RMB (bn) 18% 17.1%
9,000 70% 16.5% 16.8%
16% 15.4%
8,000
60%
14% 13.3%
7,000
50%
6,000 12% 10.7%
5,000 40%
10%
4,000 8.0%
30% 8%
3,000
20% 5.6%
6%
2,000 4.3%
10% 4% 3.2%
1,000

0 0% 2%
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E
0%
GMV % YoY - RHS 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

Source: iResearch Source: DTZ, Cushman & Wakefield, National Statistics Bureau

Figure 24: Projected revenue of 3PLs in China Figure 25: Expenditure on 3PLs as % of total
logistics expenditure
RMB (bn) (%)
250 14% 12
10.9
10.5 10.5
12% 10
200
8
10%
8
150 8%
6

100 6%
4
4%
50 2
2%

0 0% 0
2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E China US Europe Japan

3PL revenues % YoY - RHS Expenditure on 3PLs as % of total logistics expenditure

Source: The Statistics Portal, DTZ, Cushman & Wakefield Source: Armstrong & Associates

Global Logistic Properties


(GLPL.SI / GLP SP) 10
24 August 2016

Risks to demand from customers moving upstream


While e-commerce has been a key driver of demand, we see potential demand risks to
logistics facilities providers from e-commerce companies including JD.com, Vipshop and
Alibaba. These players are increasingly looking to expand by building their own
warehouses to meet their specific needs. According to DTZ/C&W, warehouses being
developed for self-occupancy have been getting increasingly popular.
Vipshop, a leading online discount retailer, operates c.1.6 mn sq m of warehouse space as
of Dec-2015, out of which c.1 mn sq m is self-owned; this represents a significant increase
from only c.500k sq m of warehouse space owned as at Dec-2014. In 2015 alone, Vipshop
incurred Rmb1.99 bn (c. US$308 mn) to acquire land use rights in China to construct its
own facilities. Assuming land costs of US$200 per sq m, this would be sufficient to
construct c.1.5 mn sq m of logistics facilities. Indeed, management reiterated in its recent
2Q16 results that it is on track to add c.0.5 mn sq m of warehousing capacity by the end of
2016, and we estimate much of it will be self-owned rather than leased.

Figure 26: Value of land use rights on customers' balance sheet rapidly rising
(Rmb mn) Dec-13 Dec-14 Dec-15 Jun-16
Vipshop 0.0 82.0 197.5 2,244.9
JD.com 598.9 1,067.3 1,928.2 2,206.9
Source: Company data

Large e-commerce firms Similarly, JD.com, as at Dec-2015, owns land use rights in 12 cities, including Beijing,
are increasingly Shanghai, Guangzhou, Wuhan, Shenyang, Kunshan, Chongqing, and Tianjin, to build its
expanding by building own warehouses, having paid an aggregate of c.Rmb3.2 bn (US$0.5 bn) for the
their own facilities, which acquisition of land use rights, building of warehouses and purchasing equipment. Since
could impact demand launching 100,000 sq m of warehouse space in Shanghai in October 2014, JD.com has
from warehouse gone on to launch an aggregate 250,000 sq m of warehouse space across Guangzhou,
providers Wuhan, Guiyang and Shenyang, with further plans to expand such self-owned
warehouses across various cities.
Other anecdotes include Tmall.com, China's largest B2C website spun off from Taobao,
which is securing a warehouse in Nansha, while Yhd.com (majority owned by Walmart)
has relocated from a Prologis facility to its newly-constructed warehouse in Dongguan in
4Q15. Given the increasing trend of e-commerce companies moving upstream, we believe
this could pose continued risks to demand for conventional logistics facilities lessors.
Cost sensitive e-commerce players could taper rental growth
With e-commerce players representing the demand driver for modern logistics facilities,
low margins at these companies could taper future rental growth prospects for logistics
facilities. Retention ratios for GLP are c.60% in China for example, perhaps reflective of
the cost sensitive nature of its customers. Looking at Vipshop, we see that its EBIT and
core net profit margins are at the c. 5% levels, slightly negative for JD.com historically.
This could thus hinder the ability of warehouse providers to raise rents meaningfully.
Figure 27: Low margins of e-commerce players could limit the ability of warehouse
providers to raise rents
(Rmb mn) 2014 2015 2016E 2017E 2018E
JD.com EBIT -4,949 -9,319 -1,740 1,249 4,840
Adj net profit -12,954 -9,388 -2,203 566 3,259
Revenue 115,002 181,287 257,593 348,867 459,324
EBIT margin (%) -4% -5% -1% 0% 1%
Adj NP margin (%) -11% -5% -1% 0% 1%
Vipshop EBIT 834 2,071 2,652 3,607 4,225
Adj net profit 1,234 2,247 2,724 3,462 3,992
Revenue 23,129 40,203 55,615 69,578 81,557
EBIT margin (%) 4% 5% 5% 5% 5%
Adj NP margin (%) 5% 6% 5% 5% 5%
Source: Company data, Credit Suisse estimates
Global Logistic Properties
(GLPL.SI / GLP SP) 11
24 August 2016

Expect slowing rental growth ahead


Unsurprisingly, a combination of slowing demand and ample supply of new projects has
resulted in most cities exhibiting a trend of slowing rental growth. While CBRE still expects
logistics rents to rise, growth is likely to be tepid across most cities. Guangzhou and
Shenzhen are the only two cities likely to exhibit rental growth of more than 1% in the next
six months, with Chengdu, Chongqing and Wuhan at risk of further rent declines.

Figure 28: CBRE expects only moderate growth in Figure 29: …with most cities continuing to see
the next six months… slowing rental growth
Rental growth 1Q16 (QoQ) 2Q16 (QoQ) Next 6 months
Guangzhou 2.6% 0.8% 1-3%
Rental decline Rental decline Rental growth Rental growth slowing
Shenzhen 0.7% 2.8% 1-2% accelerating slowing accelerating
Beijing 2.3% 0.0% 0-1%
Chengdu Dalian
Dalian 0.0% 0.3% 0-1% Chongqing
Hangzhou 5.2% 5.0% 0-1%
Beijing Shenyang
Nanjing 3.6% 5.0% 0-1% Tianjin
Ningbo 4.6% 5.0% 0-1% Qingdao
Wuhan
Qingdao 0.6% -0.2% 0-1%
Shanghai
Shanghai 3.5% 5.0% 0-1%
Ningbo
Shenyang 0.0% 2.5% 0-1%
Tianjin 0.2% 0.0% 0-1% Shenzhen Nanjing
Chengdu -0.5% -0.8% -1-0% Hangzhou
Chongqing 0.3% 0.0% -1-0% Guangzhou
Wuhan -1.9% -0.6% -1-0%
Source: CBRE estimates Source: CBRE estimates

Global Logistic Properties


(GLPL.SI / GLP SP) 12
24 August 2016

Market leader, but in an increasingly


crowded space
As one of the largest global providers of modern logistics facilities with a 52 mn sq m
portfolio, GLP has a market leadership position across its operating geographies of China,
Japan and Brazil, and is the second largest player in the US. China represents GLP's key
operating region, at 47% of PATMI ex-revaluations and 57% of reported NAV in FY16.
GLP is the market leader In our view, critical success factors for logistics facilities providers are: (1) access to land, (2)
in China, Japan, and access to funding and (3) the ability to generate the "network effect". While GLP's dominant
Brazil and is the second scale and long-standing position as the most established logistics facilities provider is
largest in the US supportive of the company's growth ambitions, in an environment where the barriers to entry
are not significant, we believe GLP's competitive advantage becomes less apparent.
We highlight that despite convoluted regulatory hurdles in obtaining suitable land in China,
GLP's competitors have been able to grow supply at 27% CAGR from FY10-FY16, in line
with GLP's 29% growth CAGR. While GLP has enjoyed low weighted average borrowing
costs of 5.4% in China with uncalled capital from its funds platform, there remains sizeable
liquidity seeking logistics assets, with a broad spectrum of developers outside of GLP
managing to secure investment funding too; signifying investor confidence in the execution
capabilities of these developers, in our view.
Finally, we believe that the "network effect", where GLP can leverage its scale to grow with
its customers, is not an exclusive competitive advantage for the company. For example,
while GLP has enjoyed rapid growth in leased area from JD.com, its second-largest
customer in China as at FY16, GLP only represented c.12% of total facilities area, with
close to 80% of JD.com's requirements leased from other lessors. This despite GLP's far
larger scale of operations, with heightened risks of portfolio vacancy going forward, given
end customers' drive to construct more self-owned, custom-designed warehouses.
Ultimately, while e-commerce demand is still a bright spot for GLP, e-commerce as a
percentage of GLP's China business has stabilised at c.25% of total leased area since
FY14. This would imply that the pace of e-commerce growth has been equivalent to that of
GLP's non e-commerce customers. With GLP's customer base being diversified across
various end-user industries in China, we believe GLP will not be immune to the continued
slowdown in the broader economy.

Snapshot of GLP today


Figure 30: Snapshot of GLP's portfolio as of FY16
China Japan Brazil US
Key markets 229 logistics parks in 38 94 logistics parks in 7 major markets 63 logistics parks (88% São Paulo & 690 logistics parks in 32 key
major cities (85% Tokyo & Osaka) Rio de Janeiro) markets
Total assets US$12,237 mn US$9,058 mn US$1,948 mn US$12,901 mn
WALE 2.6 years 5.1 years 5.5 years 3.7 years
Lease ratio 87% 99% 92% 94%
Cap rate 6.4% 4.9% 11.0%* 6.0%
No. of completed properties 912 94 87 1,406
Total area (mn sq m) 26.7 5.6 3.6 16.0
Completed area (mn sq m) 15.0 4.5 2.5 16.0
Development pipeline (mn sq m) 11.7 1.0 1.1 0.0
Land reserves (mn sq m) 12.1 - - -
Notes: Portfolio on 100% basis,* Cap rate for Brazil represents revenue yield. Source: Company data, Credit Suisse estimates.

GLP is one of the largest global providers of modern logistics facilities, where the company
owns and operates a 52 mn sq m (on a 100% basis) network of facilities across its key
markets of China, Japan, Brazil and the United States. This comprises 37.9 mn sq m of

Global Logistic Properties


(GLPL.SI / GLP SP) 13
24 August 2016

completed properties vs a development pipeline of 13.9 mn sq m (excluding 12.1 mn of


land reserves in China).
Since FY04, GLP has managed to grow its portfolio of completed properties at a CAGR of
55% through a combination of acquisitions and development-led growth.

Figure 31: Steady growth in completed GFA (100% Figure 32: FY16 pro-rata investment properties'
basis) valuation
(mn sqm)
40.0 37.9
Japan: FY04-FY16 CAGR of 30% Total pro-rata portfolio valuation: US$11.486 bn*
35.0 China: FY05-FY16 CAGR of 58% Land, $511
Brazil: FY13-FY16 CAGR of 36% , 5%
Total: FY04-FY16 CAGR of 55% 28.9 Other
30.0 16.0 facilities,
Brazil,
Under $723 ,
$65 , 1% development 6%
25.0 , $1,074 , US, $1,311
10.7 9% , 12%
Completed
20.0 2.5 & pre-
stabilized,
14.8 2.4 $1,076 , 9%
15.0 12.2 1.4 China,
10.0 1.0 $6,081 ,
14.9 53%
10.0 6.8 11.8 Japan,
5.4 6.0 9.5 $3,371 ,
3.8 6.4 7.6 Completed
& stabilized,
29%
5.0 2.4 2.6 3.2 4.0
0.2 0.6 1.3 0.8 1.4 $8,760 ,

0.1 0.3
1.0 1.6 2.42.8 2.8 2.8 3.6 3.6 3.9 4.0 4.5 76%
0.0 0.2 0.5
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Japan China Brazil US

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

GLP's business model


GLP’s growth strategy is centred on being the best operator, creating value through
developments and expanding its global footprint via its fund management platform. The
three key facets of the company's business model are:

■ Operations: Qwnership, management and leasing out of logistics facilities across its
network. 4,000 plus customers at present including a mix of manufacturers, retailers
and third-party logistics companies.

■ Development: Developer of logistics facilities to meet market demand and customer


needs. Relatively short development cycle, with a typical development taking c.21
months from site acquisition to lease-up, while allowing GLP to generate c.25% value
creation margins in the long term

■ Fund management: Funds platform allows co-investment opportunities with


institutional investors, thus providing GLP with third-party capital to leverage on growth
opportunities. Management fees and promotes will help enhance GLP's returns.

Global Logistic Properties


(GLPL.SI / GLP SP) 14
24 August 2016

Figure 33: Development—25% value creation Figure 34: Funds platform—steady growth in fee
margin income
(US$ mn, GLP (AUM - US$ bn) (Fees - US$ mn)
share)
1600 40% 40 160
35
$1,350
1400 35% 35 140
2.5
$250 $1,155
1200 30% 30 120

1000 $255 25% 25 12.9 100


20
800 $700 20% 20 80
$650 2.8
$600
600 $150 $200 15% 15 10.0 60
$100 $1,100 11 8.0
$900 8
400 10% 10 2.3 40
2.4 3.0 3.0
200 $500 $500 $500 5% 3
5 9.6 20
6.0 5.8 6.2
2.6
0 0% 0 0
FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16
Japan China
Development cost Revaluation gain US Brazil
Value creation margin - RHS Fund fees (100% basis) - RHS

Source: Company data Source: Company data

China: Entrenching market leadership position at a cost?


GLP is one of the earliest entrants to the modern logistics space in China. It currently has
a total completed GFA of 14.9 mn sq m, far exceeding that of its competitors. The key
geographic segment for GLP, China, represents c.57% of reported NAV as at FY16 and
53% of the company's pro-rata valuation of investment properties.
The dominance of the Chinese business can similarly be seen in GLP's income statement,
where China represented 55% of reported PATMI and 47% of PATMI ex-revaluations in
FY16; although this has been diluted somewhat following GLP's ventures into Brazil and US.
Given the increasingly constrained supply of land against competition for customers, GLP
in February 2014 entered into a sale agreement with a consortium of Chinese domestic
institutions, where GLP will inject its entire China business into a Holdco at 1% premium to
NAV. This comprises China Life Insurance, China Development Bank, Bank of China
Group Investment, China Post, HOPU Funds and others. Following the sale, GLP has a
66% stake in the China Holdco, with 30.2% held by the China consortium and 3.6% by
GLP employees.
Much of the benefit of The stake sale in the China Holdco arguably better positions the company amidst
GLP's 30.2% stake sale competition, and strengthens GLP's platform in China as illustrated in Figure 37. Much of
in China Holdco to the the benefits however remain intangible, although GLP did highlight that about 21% of its
China consortium remain land acquired in FY15 was done through the support of its consortium partners. In our
intangible view, the stake sale at 1% premium at NAV at a time when GLP was trading at 1.2-1.3x,
coupled with the subsequent earnings dilution impact likely contributed to the derating in
the stock by investors thereafter.

Global Logistic Properties


(GLPL.SI / GLP SP) 15
24 August 2016

Figure 35: GLP—a clear market leader in China Figure 36: Strategic rationale for the sale of stake in
based on completed area China Holdco to consortium partners in 2014
(mn sqm)
16 14.9

14
GLP stake 19.9%

12

10

4
1.9 1.5
2 1.3 1.1 1.0 0.8 0.8 0.8 0.6
0
GLP

Goodman

Blogis

Redwood
Yupei

Mapletree
Prologis

Cainiao
Boxway
Vipshop
E-Shang/

Note: Based on completed area for modern logistics for lease as of May 2016. Source: Company data
Source: Company data, CBRE, Credit Suisse estimates.

Figure 37: China portfolio by area (100% basis) Figure 38: China portfolio by valuation (100% basis)
(mn sqm) (US$ bn)
30.0 14.0
26.7 12.2
25.0 12.0 1.1
21.8 6.4 10.2
10.0 1.4
20.0 18.7 1.0 0.2
5.4 8.2 1.4
5.3 1.2
15.0 8.0 6.8 1.2 0.2
15.0 5.7 0.8
4.6 0.7 0.8
10.7 4.2 2.5 6.0 5.4 1.1 0.2
3.6 0.7 0.9 0.9
10.0 8.0 1.5 3.9 0.9 0.2
2.1 3.1 0.8 0.6 0.4
1.3 4.0 0.2 8.1
2.1 0.8 0.9 0.2 7.0
2.4 0.8 0.7 0.5
5.0 0.3 11.7 0.0 5.1
1.6
0.0 9.6 2.0 0.7 4.1
0.6 6.2 7.4 3.5
5.4 1.9
3.4
0.0 0.0
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
Completed Completed & pre-stabilized Completed Completed & pre-stabilized
Other facilities Under development/repositioning Other facilities Under development/repositioning
Land held for future development Land held for future development

Source: Company data Source: Company data

Japan: Stable portfolio supported by steady rents and occupancies


GLP is the largest Similar to China, GLP is the largest provider of modern logistics facilities in Japan, with a
logistics provider in total GFA of 4.5 mn sq m. The majority of assets comprise completed and stabilised
Japan. Most assets are properties, thus providing a steady contribution to GLP's income, given the resilient rents
completed and stabilised, and occupancies as seen in Figure 41. However, as GLP does not have any land reserve
thus providing a steady in Japan, this would imply little growth momentum over the next few years, in our view.
contribution. GLP does 85% of the portfolio is located in Tokyo/Osaka, with a relatively long WALE of 5.1 years.
not have any land
reserve in Japan to grow New developments will largely be carried out under the US$2 bn GLP Japan Development
Venture II set up in Feb-2016, where GLP has a 50% stake, given the earlier GLP JDV I
has reached 92% of its investment capacity.
The IPO of GLP J-REIT was completed in Dec-2012, following which GLP retained a 15%
interest. Based on the current price of ¥123,900 per share, GLP's stake is worth c.US$470
mn. Given its 15% stake in the company, GLP J-REIT is classified as an available-for-sale

Global Logistic Properties


(GLPL.SI / GLP SP) 16
24 August 2016

equity investment, with income from the investment properties not recognised in GLP's
income statement.

Figure 39: GLP—largest modern logistics player in Figure 40: Stable rents and occupancies in Japan
Japan
(mn sqm) 1,200 120%
1,077 1,077 1,083 1,087 1,098 1,109
5.0
4.5
4.5 1,000 100%
4.0 99% 99% 99% 99% 99% 99%
3.5 800 80%

3.0 2.6
2.3 600 60%
2.5
2.0
400 40%
1.5 1.1 1.0
1.0 0.8 0.8 0.8 0.7 0.7 200 20%
0.5
0.0 - 0%
FY11 FY12 FY13 FY14 FY15 FY16
JLF
House
GLP

Prologis

Lasalle

Goodman

Mapletree
Mitsubishi

Nomura RE
Mitsui RE
Daiwa

Rents (JPY/sqm/mth) Lease ratios (%) - RHS

Note: Based on completed area for modern logistics for lease as of May 2016. Source: Company data
Source: Company data, CBRE, Credit Suisse estimates.

Figure 41: Japan portfolio by area (100% basis) Figure 42: Japan portfolio by valuation (100% basis)
(mn sqm) (US$ bn)
6.0 5.6 10.0
9.1
4.9 9.0 8.1 0.5
5.0 1.0 7.5 7.7 0.7
4.4 8.0 0.2 7.3
4.0 0.9 0.4 0.2
3.8 0.4 7.0 0.1 0.4 0.5
4.0 0.5 6.2
0.2 0.4 0.2
0.1 6.0
2.8
3.0 5.0
4.0 7.9 7.9
2.0 4.0 4.1 7.0 7.0 6.8
3.6 3.5 3.7 3.0 6.2
2.8
2.0
1.0
1.0
0.0 0.0
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
Completed Completed & pre-stabilized Completed Completed & pre-stabilized
Under development/repositioning Land held for future development Under development/repositioning Land held for future development

Source: Company data Source: Company data

Brazil: Hurt by a slowing economy


On 14 November 2012, GLP announced its expansion into Brazil via a JV agreement with
China Investment Corporation (CIC), Canadian Pension Plan Investment Board (CPPIB)
and GIC of Singapore. GLP bought the portfolio from Prosperitas, a Brazilian private
equity outfit for a total consideration of R$2.9 bn (US$1.45 bn then). In the first JV
comprising largely stabilised assets, GLP Brazil Income Partners I, GLP owns a 34.2%
stake, while in the second development JV, GLP Brazil Development Partners I, GLP
holds a 41.3% stake.
Subsequently in October 2014, GLP announced the expansion of its Brazil platform with
the formation of GLP Brazil Income Partners II and the expansion of GLP Brazil
Development Partners I.

Global Logistic Properties


(GLPL.SI / GLP SP) 17
24 August 2016

While the characteristics of an emerging economy (lack of modern logistics facilities,


potential for long-term consumption growth) are attractions for GLP's portfolio in Brazil, the
contraction in the economy of late has hurt. While rents have held steady, lease ratios
have been on a steady decline, with GLP further hurt by revaluation losses and translation
losses from a weakened BRL. We take comfort that Brazil is however, a modest portion of
GLP's total portfolio, at 6% of pro-rata portfolio valuation and 5% of reported NAV.

Figure 43: Brazil—fragmented market with limited Figure 44: Decline in lease ratios with completions
large players
(mn sqm) 30.0 100%
3.0 98%
2.5 25.0 97% 98%
2.5 21.9
96% 20.4
20.0 17.8 96%
2.0 16.8

15.0 94%
1.5
92%
10.0 92%
1.0
0.7
0.6 0.6
0.5 0.5 0.5 5.0 90%
0.5 0.4
0.3
0.2
- 88%
0.0
FY13 FY14 FY15 FY16
Sanca
MRV Log

Marabraz
GLP

Goodman
Armazens

DVR
Prologis

Logbras
Hines

GB

Rents (BRL/sqm/mth) Lease ratios (%) - RHS

Note: Based on completed area for modern logistics for lease as of May 2016. Source: Company data
Source: Company data, CBRE, Credit Suisse estimates.

US: Fulfilling global ambitions through funds platform


GLP announced its entry into the US through co-investing with GIC to acquire IndCor
Properties, a US$8.1 bn logistics portfolio in December 2014. The transaction was aimed
at broadening GLP's market exposure, while growing its fund management platform. While
GLP held an initial 55% stake, this has since been syndicated to 10% in October 2015,
with the stake accounting for as a jointly controlled entity (share of profits).
Thereafter, GLP announced in July 2015 that it will be acquiring a US$4.55 bn US logistics
portfolio from Industrial Income Trust, to be injected into its fund management platform.
Similar to US Income Partners I, GLP has since retained a less than 10% equity stake,
with the portfolio fully syndicated as of today, with completion slated in 2Q FY17.

Global Logistic Properties


(GLPL.SI / GLP SP) 18
24 August 2016

Figure 45: GLP now the second largest player in the Figure 46: …with two acquisitions in quick
US… succession
(mn sq ft) (mn sqm)
400 20
358
18
350 16.1 16.0
16
300 14
5.4 5.4
250 12 10.7 10.7 10.7
10
200 172
8
150 123
6
87 85 85 10.7 10.7 10.7 10.7 10.6
100 70 4
64 63 60
50 2
0
0
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16
Liberty

DCT

Industrial
Prologis

GLP

Exeter

Majestic
Duke

Partners

USAA
Clarion

First US Income Partners I US Income Partners II

Note: Based on completed area for modern logistics for lease as of May 2016. Source: Company data
Source: Company data, CBRE, Credit Suisse estimates.

Dominant scale supportive, but competitive


advantage less apparent
In our view, critical success factors for logistics facilities providers would be:

■ Access to land.

■ Access to funding.

■ Ability to generate the "network effect".


Essentially, much of this would be driven by management relationships, know-how and
track record. While GLP's dominant scale and long-standing position as the most
established logistics facilities provider is supportive of the company's growth ambitions, in
an environment where the barriers to entry are diminished, we believe GLP's competitive
advantage becomes less apparent.
Increasingly, we believe that GLP's competitors have been able to:
(1) similarly grow land bank despite supply constraints,
(2) gain access to funding from established and reputable institutional investors and
(3) grow their tenant base, particularly with key e-commerce players as customers
despite their smaller scale.
Management relationships and know-how: Key advantage, though hard
to quantify
As one of the earliest entrants to the modern logistics space in China, we believe GLP has
a natural first mover advantage compared to later entrants to the industry. GLP's China
portfolio has its origins in CLH Limited, established in 2008 to invest in logistics facilities in
China. Much of the then-serving Prologis China management team remains a part of the
management team in GLP today.
While hard to quantify, given the convoluted regulatory approval and filing process to
establish a logistics facility in China, management relationships and know-how become a
competitive advantage for the company, in our view. This would also be supportive of

Global Logistic Properties


(GLPL.SI / GLP SP) 19
24 August 2016

GLP's land sourcing capabilities, a key benefit at a time when limited supply of land is
becoming a constraint.
Significant land bank could provide future growth opportunities…
GLP has historically been able to acquire land for development in China at a pace faster
than its development starts, hence allowing the company to build up a sizeable land bank
today. Based on current management guidance on development starts of 2.6 mn sq m on
a 100% basis, GLP's existing land held for future development would be sufficient for 2.5
years' worth of development starts.
If we further assume that the land reserves of 12.1 mn are fully available to GLP for
conversion, GLP would have sufficient land for 7.1 years' worth of development starts,
putting the company in a comfortable position in terms of future growth opportunities.

Figure 47: Significant buildup of land bank in China, Figure 48: Sufficient land bank for 7.1 years, but
although growth has been largely flat since FY14 GLP's pro-rata share has declined post the China
HoldCo sale
(GFA mn sqm) (GFA mn sqm)
20.0 18 19 19 20.0
17 18 18 18 17 18 18 18
18.0 18.0
16 16
16.0 15 16.0
13
14.0 12 14.0
11
12.0 11 11 11 12.1
12.0 12.8
9 12.1
10.0
8 9 8 10.0
8.0 7 10.5
8.0 9.4
6.0 9.1
6.0 8.8 6.9
4.0 5.7 8.1 6.3
2.0 4.0 5.1
5.7 5.4 6.4
0.0 2.0 4.2 3.2 3.9
2.4 1.6 2.1 1.5 2.5 2.9
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17

-
FY11 FY12 FY13 FY14 FY15 FY16

Land held for future development Land reserve Land reserves (pro-rata) Land reserves (100%)
Land held (pro-rata) Land held (100%)

Note: 100% basis. Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates

…although proportion in tier 1 cities has been on a decline…


Nevertheless, constraints on the supply of land in China in recent years has impacted GLP
to a certain extent as well, with GLP's land bank largely flat since FY14. This given local
governments' preference to grant land for industrial or commercial use, which generates
more tax revenue, higher investments and employment for the local community compared
to that for logistics purposes.
Further, the constraints are especially pertinent in tier 1 cities, where demand growth for
logistics facilities is largely concentrated. The composition of GLP's land bank is a
reflection of that, in our view, where the proportion of land held for future development in
tier 1 cities has been on a decline from 58% in 2011 to 16%. This is further reflected in the
halving of per square meter valuation of its land from US$330-370 psm of GFA in 1Q
FY12 to about US$170 psm as at 4Q FY16.

Global Logistic Properties


(GLPL.SI / GLP SP) 20
24 August 2016

Figure 49: Proportion of land held for future Figure 50: …which is reflected in the halving of $/sq
development in tier 1 cities has been on a decline… m valuation of its land held for future development
(% by GFA) (US$ psm GFA)
100% 450
11% 16% 13% 12%
90% 18% 19% 400
80% 15% 350
26% 20%
20% 15% 16% 300
70%
60% 6% 250
13%
42% 200
50%
44% 43% 150
40% 49%
100
30% 58%
52% 50
20%
31% 0
10% 24% 24%

1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
16%
0%
FY11 FY12 FY13 FY14 FY15 FY16
psm value of land held for future development (100%)
Tier 1 Tier 1.5 Tier 2 Tier 3 psm value of land held for future development (pro-rata)

Source: Company data, JLL, Credit Suisse estimates Source: Company data, Credit Suisse estimates

…with local players able to similarly grow supply


Despite convoluted regulatory hurdles in obtaining suitable land for the construction of
logistics facilities, we find that local and international players too have been able to grow
supply of modern logistics facilities at a rapid pace; albeit not on the same scale as GLP.
As described earlier in Figures 15 and 26, the major logistics players, new entrants (such
as Vanke, Ping An) and end-customers themselves have been successful in growing their
land bank for logistics facilities, adding to supply pressure. Thus, access to land may not
be that significant a barrier to entry, given the right local partners with the requisite SOE
backing and access to local governments and decision makers.

Figure 51: Breakdown of major players' completed Figure 52: GLP's competitors have been able to
GFA grow supply at the same pace
(mn sq m) FY10 FY11 FY12 FY13 FY14 FY15 FY16 (mn sqm)
GLP 3.2 4.03 4.6 5.7 7.6 9.9 14.9 30.0
GLP: 29% CAGR
Goodman 0.3 0.3 0.5 0.6 1 1.5 1.9 25.6
Major players ex-GLP: 27% CAGR
Blogis 0.7 0.6 0.7 0.9 1.1 1.5 1.5 25.0
Prologis 0.3 0.4 0.4 0.5 0.7 0.9 1.3
20.0 10.7
CNLP (Yupei) 0.3 0.3 0.2 0.3 0.4 0.6 1.1 16.7
E-Shang Redwood 0.4 0.6 1
15.0 12.7
Mapletree 0.6 0.6 0.6 0.8 0.8 0.8 0.8 6.8
Vipshop 0.8 9.3
10.0 7.5 5.1
Boxway 0.8 6.6
5.8 3.6 14.9
Cainiao 0.6 2.6 2.9
5.0 2.6 9.9
7.6
ACL 0.3 0.3 0.3 0.3 0.4 0.5 0.5 4.6 5.7
3.2 4.0
Beijing Properties 0.2 0.2 0.2 0.0
FY10 FY11 FY12 FY13 FY14 FY15 FY16
Vailog 0.1 0.1 0.2 0.2 0.1 0.2 0.2
Total 5.8 6.6 7.5 9.3 12.7 16.7 25.6 GLP ex-GLP

Source: Company data, GLP estimates, CBRE estimates Source: Company data, Credit Suisse estimates

Low cost of funding and scale of funds platform provides capital for
growth…
GLP's investment grade credit rating (Moody's: Baa2, Fitch BBB+) and relatively low
gearing (current net debt: total assets of 19.5% as at FY16 vs 40% target) has enabled the

Global Logistic Properties


(GLPL.SI / GLP SP) 21
24 August 2016

company to secure attractive funding costs to finance its development build-out. The scale
of its funds platform too provides significant uncalled capital to fund growth opportunities,
with US$11.6 bn of uncalled capital, largely focused on China.
A recent example is that of GLP's Rmb1.5 bn issuance of RMB-denominated bonds in July
2016, which we understand to be more than three times oversubscribed. The issuance
comprises three-year tenor bonds priced at 3.12% p.a. and five-year tenor bonds priced at
3.58% p.a.; a sizeable discount to its 5.4% weighted average interest costs in China
(weighted average maturity of 4.1 years) as at FY16.

Figure 53: Attractive cost of funds for GLP Figure 54: Scale of asset base also supportive of
growth
Weighted average interest costs (US$ mn)
25,000 25.0%
7.0%
6.2%
20,240
6.0% 5.4% 20,000 20.0%
5.3% 17,462
4.9% 4.9%
5.0%
15,000 13,580 13,248 13,947 15.0%
4.0% 3.4%
3.0% 2.9% 10,000 10.0%
3.0% 2.7% 2.7%

4,175 4,770
2.0% 5,000 2,882 2,848 5.0%
2,592

1.0%
0 0.0%
FY12 FY13 FY14 FY15 FY16
0.0%
FY12 FY13 FY14 FY15 FY16 Total assets Total loans & borrowings
Group China
Total debt to assets - RHS Net debt to assets - RHS

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 55: Sizeable uncalled capital under its funds platform


(US$ bn) FY13 FY14 FY15 FY16
Assets under management 8.4 11.1 20.0 35.0
Invested capital 6.0 6.9 16.6 23.5
Uncalled capital 2.4 4.2 3.4 11.6
Source: Company data

…but there remains sizeable liquidity seeking logistics assets


Based on results from the CBRE Asia Pacific Investor Intentions Survey in 2016, logistics
assets remain a popular sector for APAC real estate investors, stemming from growth
prospects in the e-commerce industry in China and South Korea.
Within China, while this has eased somewhat from 2015 due to the lack of stock available
for sale, logistics assets remain a key sector of interest. Thus, CBRE believes that a more
practical route to enter the sector is via the formation of partnerships with logistics
developers or investing in logistics-focused real estate funds.

Figure 56: Logistics yields typically 150-200 bp higher vs other sectors


(2016E) Beijing Shanghai Guangzhou Shenzhen Tier II cities
Logistics 6.30% 6.70% 6.30% 6.20% 7.00-8.00%
Office 4.75% 4.55% 4.30% 4.10% 6.25-7.25%
Retail 4.75% 4.55% 4.30% 4.10% 6.20-7.30%
Source: CBRE estimates

Global Logistic Properties


(GLPL.SI / GLP SP) 22
24 August 2016

Figure 57: Logistics, the second most popular Figure 58: Within China, investor interest in
sector for APAC real estate investors logistics assets remains high
Industrial 40% 38%
5% 35%
35%
Retail
30%
8%
25% 25%
Office 25%
Shopping 33%
20%
centres 20%
9% 16%
15% 12%
Residential 10%
10% 8%
12%
5%
0%
Hotels/Resorts Logistics 0%
15% 18% Office Logistics Residential Retail Hotels

2015 2016

Note: As at March 2016. Source: CBRE, Credit Suisse research Source: CBRE, Credit Suisse research

While an inexhaustive list, we have observed a clear trend of significant inflow of capital
seeking exposure into the Chinese logistics space, as seen in Figure 60. CPPIB, for
example, has committed US$2.6 bn to-date to its China Logistics Partnership with
Goodman Group, which has now invested in 45 logistics projects in 16 Chinese markets.
The breadth of "blue chip" institutional investors and sovereign wealth funds may affirm
the longer-term prospects and attractiveness of the industry; however, the fact that a
broad spectrum of developers outside of GLP too managed to secure investment funding,
likely after rounds of investor due diligence, also signifies investor confidence in the
execution capabilities of these "lesser" developers, in our view.
Given the relatively generic nature of logistics facilities as an asset class, with the
availability of funding in place, smaller developers too will be able to rapidly build out their
supply of logistics facilities.
Figure 59: Major entity-level transactions (JVs) since 2013
Date Investor Developer Amount (US$ mn)
Aug-2016 Ivanhoé Cambridge & CBRE Global Investment Partners LOGOS China Investments 400
Feb-2016 PGGM Redwood 160
Dec-2015 CPPIB Goodman Group 1,000
Aug-2015 APG E-Shang 285
Jul-2015 Seven leading global institutions GLP 1,613
Jun-2015 Ivanhoé Cambridge & CBRE Global Investment Partners LOGOS China Investments 400
Jun-2015 RRJ Capital, Seatown holdings & others CNLP 250
Nov-2014 CPPIB Goodman Group 400
Sep-2014 Ping An Real Estate, PAG Wuzhou International 343
Jul-2014 PGGM Redwood 144
Jul-2014 Mitsui, Mitsubishi Beijing Properties Holdings 146
May-2014 APG E-Shang 650
Apr-2014 RRJ Capital, Temasek Yupei 250
Feb-2014 BOCGI, Hopu Funds, China Life GLP 2,500
Dec-2013 Goldman Sachs E-Shang 120
Nov-2013 Six leading global institutions GLP 662
Aug-2013 Carlyle, Townsend Group Yupei 200
Jul-2013 HIP China (ADIA) Prologis 500
Jul-2013 CPPIB Goodman Group 400
Source: Company data, JLL, Credit Suisse estimates
Global Logistic Properties
(GLPL.SI / GLP SP) 23
24 August 2016

"Network effect": Not an exclusive competitive advantage


The ability to generate the "network effect" has been touted by GLP as a key success
factor for the company, where it can leverage its size and scale of its platform to grow with
its customers and serve them in multiple locations. This would also allow for flexible
expansion by customers, enabling them to optimise distribution networks, drive efficiency
and reduce overall logistics costs.
Case study #1: JD.com
JD.com, one of China's largest e-commerce companies would be the quintessential case
study of GLP's "network effect", as GLP's second largest customer as at FY16
representing 4.6% of total leased area. JD.com has indeed expanded rapidly with GLP,
from c.27,000 sq m in one city as at FY12 to 517,000 sq m across 14 cities as at FY16.

Figure 60: JD.com—quintessential case study of GLP's "network effect"


(sqm)
600,000 16
14
14
500,000
12
10
400,000
10

300,000 8
517,000
6
200,000 4 4
358,000
4
100,000 1 2
27,000 62,000 89,000
- -
FY12 FY13 FY14 FY15 FY16

Leased area (sqm) No. of cities - RHS

Source: Company data

Whilst JD.com has tripled The rapid growth of JD.com has no doubt translated into strong leasing demand for its
its warehouse GFA from fulfilment and distribution centres, and hence demand for GLP's logistics facilities in China.
1.3 mn sq m in 2013 to 4 Based on filings by JD.com, aggregate GFA of its warehouses has tripled from 1.3 mn sq
mn sq m in 2015, we m in 2013 to 4 mn sq m in 2015. Critically, however, we estimate that GLP only
estimate that GLP is only represented c.12% of total facilities area of JD.com, with close to 80% of JD.com's
c.12% of total area requirements leased from other lessors. This is despite GLP's far larger scale of
operations in China, as seen in Figure 62.
With JD.com in the process of constructing more of its owned, custom-designed
warehouses on land where it has obtained land use rights, we believe there could be rising
risks of portfolio vacancy on the part of third-party lessors such as GLP.

Global Logistic Properties


(GLPL.SI / GLP SP) 24
24 August 2016

Figure 61: Robust growth in total GFA of JD.com Figure 62: …but GLP only c.12% of total area, with
logistics network of warehouses… JD.com's % of owned warehouses to continue
increasing
(sqm)
100.0%
4,500,000 250
90.0%
213
4,000,000
80.0%
3,500,000 200
70.0%
3,000,000 60.0% 79.4% 79.2%
150 93.3%
2,500,000 123
50.0%
2,000,000 4,170,610 40.0%
82 100
1,500,000 30.0%
1,000,000 2,220,928 20.0%
50
1,322,845 16.1% 12.4%
500,000 10.0%
6.7% 4.5% 8.4%
0 0 0.0%
CY2013 CY2014 CY2015 CY2013 CY2014 CY2015

GFA No. of warehouses - RHS JD.com owned GLP Other lessors

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Case study #2: Vipshop


Vipshop, a leading online discount retailer for brands in China, is another e-commerce
player which has seen rapid growth in recent years. Owned and leased logistics facilities
have grown from c.120,000 sq m in 2011 to 1.6 mn sq m in 2015. Vipshop represents the
fourth largest customer for GLP in China at 2.3% of leased area, with GLP being
Vipshop’s sole provider of logistics facilities in Eastern China back in 2013.
Vipshop has grown more However, we estimate that while GLP represented c.68% of Vipshop's leased logistics
with other providers than area in 2013, this has declined to just 17% in 2015, notwithstanding Vipshop's rapid
with GLP, as c.17% of growth, in part due to the strong growth in self-owned and developed logistics facilities.
Vipshop's GFA is leased
from GLP in CY15, down Ultimately, while GLP's large scale allows for flexible expansion by its customers,
significantly from c.68% customers themselves will have access to a wide plethora of logistics facilities from a
in CY13 fragmented supply base in any particular city. The locational attributes of the specific
logistics facility then remains the determining factor for lessees, with "brand loyalty"
unlikely to play a huge part in leasing decisions, in our view.

Global Logistic Properties


(GLPL.SI / GLP SP) 25
24 August 2016

Figure 63: Strong growth in Vipshop's logistics Figure 64: …but GLP as % of total on a decline
facilities…
(sqm) 100%
1,800,000 90%
1,561,555 32%
1,600,000 80%
1,400,000 70%
1,200,000 1,105,406 60%
85% 83%
1,000,000 50%

800,000 40%
68%
600,000 30%

313,323 20%
400,000
222,459
117,810 10% 17%
200,000 15%
0%
0 CY2013 CY2014 CY2015
CY2011 CY2012 CY2013 CY2014 CY2015
Owned Leased GLP Other lessors + owned

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

E-commerce still a bright spot, but non e-commerce still represents a


substantial share of leasing demand
The structural growth of e-commerce in China will continue to be a tailwind for the logistics
facilities industry, in our view. However, we note that the share of e-commerce within
GLP's China business has stabilised at c.25% of total leased area since FY14.
This would imply that despite e-commerce being a bright spot for demand, the pace of
growth has been equivalent to that of GLP's non e-commerce customers. With GLP's
customer base being diversified across various end-user industries in China, we believe
GLP will not be immune to the continued slowdown in the broader economy.

Figure 65: Share of e-commerce as % of leased area Figure 66: Lease profile by end-user industry in
in China has stabilised at c.25% since FY14 China—not immune to slowdown in the broader
economy
100% Others Machinery
Pharmaceuticals 4% 1%
/Medical
90%
3%
80%
70%
Auto & Parts
75% 76% 74% 8%
60% 80%
85% Retail/Fast
96% 91%
50% Food Chain
Electronics/Hig 32%
40% h-Tech
30% 13%

20% General
25% 24% 26% Logistics
10% 20% Services
15%
4% 9% FMCG
0% 18%
21%
FY10 FY11 FY12 FY13 FY14 FY15 FY16

e-commerce Others

Source: Company data, Credit Suisse estimates Note: As at FY16. Source: Company data, Credit Suisse estimates

Global Logistic Properties


(GLPL.SI / GLP SP) 26
24 August 2016

Downside risks to growth expectations


Effective rents in FY16 have remained close to FY12 levels, despite steady same-property
rental rate growth of c.5% in recent years. We believe this is due to GLP reporting its rents
and lease ratios for its portfolio of stabilised properties only. In addition, the shift towards
lower tier cities in China will continue to pose a drag on portfolio rents in both the near
term and longer term. We highlight that the proportion of completed GFA in tier 1 cities,
where rental growth remains healthy, has declined from 49% in FY11 to 25% in FY16, and
is unlikely to reverse given the challenges of obtaining suitable logistics land.
Given the slowing demand environment, we believe there is now an even greater need to
take a more targeted approach to development starts, and expect only 2.2 mn sq m of starts
in FY17E vs management guidance of 2.6 mn sq m. GLP is already targeting to complete 2.5
mn sq m of facilities in FY17E, implying growth of 17.6% from the FY16 levels. We estimate
that the growth in leased logistics facilities of GLP was only 1.5 mn sq m in FY16, a
moderation from FY15's levels of 2.0 mn sq m in FY15. Given further signs of a slowdown in
China, we believe either occupancies or development starts will likely disappoint.
Despite GLP reporting While GLP's earnings growth will be supported by its pipeline of completions, we believe
1Q FY17 PATMI ex-reval there is downside risk to consensus estimates, with our FY17E core PATMI estimates
of only US$39 mn (-32% 17% below consensus, implying a 5% YoY earnings decline. Despite GLP reporting 1Q
YoY, partly impacted by FY17 PATMI ex-reval of only US$39 mn (-32% YoY, partly impacted by FX losses),
FX losses), consensus consensus continues to expect 15% YoY growth in FY17E. We expect lease ratios to
continues to expect 15% continue declining to 83% at the end of FY17, with the divestment of 0.3 mn sq m of
YoY growth in FY17E properties in Japan a further drag on core earnings. We note that both headline earnings
and PATMI ex-revaluations have remained largely flat between FY11 and FY16, and we
expect only a modest 8% earnings CAGR to FY19E.
We believe as profitability has been slow to come through historically, investors will look
towards NAV growth as an indication of the value creation potential of a company. On this
front however, NAV has also been flat at the c.US$1.80-1.90 levels since FY13. While
GLP will likely benefit from the significant appreciation of the Yen in recent months, we
expect the continued depreciation of the Yuan to pose continued headwinds for the
group's key geographic region of China.

Slowing demand to weigh on occupancies and rents


Rental growth on a downwards trend
We note that GLP reports its rents and lease ratios for its portfolio of stabilised properties
only, with properties that are completed but pre-stabilised excluded from its calculations.
Nevertheless, in line with our expectations of slowing demand, we highlight that GLP's
overall rental growth rates in China have been on a declining trend as seen in Figure 68.
Effective rents, which adjust for rent levelling, rent-free periods and incentives also exhibit
the same trend. On a portfolio basis, effective rent of Rmb1.10 per sq m per day in 4Q
FY16 remains close to 1Q FY12 levels of Rmb1.06 per sq m per day; although we
highlight that there has been a change in the basis of disclosures from 2Q FY15 onwards,
with the China VAT reform from 1Q FY17 also impacting reported rent numbers.

Global Logistic Properties


(GLPL.SI / GLP SP) 27
24 August 2016

Figure 67: Rental growth in China on a downtrend… Figure 68: …with FY16 effective rents similar to
FY12 levels
1.2 8% 1.2 20%

1.1 6% 1.1 15%

1 1.0 10%
4%
0.9 0.9 5%
2%
0.8 0.8 0%
0%
0.7 0.7 -5%

0.6 -2% 0.6 -10%

0.5 -4% 0.5 -15%

1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
Rents (RMB/sqm/day) % YoY - RHS Effective Rents (RMB/sqm/day) % YoY - RHS

Note: 1Q FY17 rent restated due to VAT. Source: Company data, Credit Suisse estimates. Note: change in basis of disclosing effective rents from 2Q FY15, while 1Q FY17 rent
impacted by VAT reform (flat QoQ otherwise). Source: Company data, Credit Suisse
estimates.

While GLP continues to report steady same-property rental rate growth of c.5% in recent
years, we highlight that GLP's portfolio constitution is an important driver of overall rental
rate growth. On this note, we believe that in addition to slowing demand, the shift towards
lower-tier cities in China will continue to pose a drag on portfolio rents in both the near
term and longer term.
Figure 70 highlights the steady decline in completed GFA in tier 1 cities from 49% in FY11
to 29% in FY16. With only 20%of projects under development located in tier 1 cities as at
FY16, we believe the prospects for rental growth continue to be constrained in the near
term. This would likely be reflected in the longer term in our view, with a similar decline in
land bank in lower-tier cities as described earlier in Figure 50.

Figure 69: Proportion of completed GFA in tier 1 Figure 70: …and unlikely to reverse given a similar
cities has been on a decline… trend in projects under development
(% by GFA) (% by GFA)
100% 4% 4% 100%
7% 5% 10% 9% 5% 11%
8% 6% 8% 15% 18% 14% 17%
90% 7% 10% 90%
9% 15% 12%
80% 80% 14% 9% 19% 11%
70% 40% 70% 34%
47%
60% 49% 50% 60%
50% 41%
50% 47% 50% 37%
52% 52%
40% 49%
40%
30% 30%
49% 52%
20% 43% 38% 20% 37%
35% 30% 34%
29%
10% 10% 22% 18% 20%
0% 0%
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
T1 T1.5 T2 T3 T1 T1.5 T2 T3

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

GLP provides rental data for its completed and stabilised logistics portfolio in China on a
regional basis rather than on a city basis. We note that the Northern region has a
significant rent premium vs the rest of its portfolio, likely due to its properties located in
Global Logistic Properties
(GLPL.SI / GLP SP) 28
24 August 2016

Beijing. However, given that pro-rata development starts in the North only amount to 12%
of starts in FY16, we believe it is unlikely that portfolio rents will receive a significant boost
near term.
Figure 71: China's portfolio data in FY16—rents likely to remain range bound, given low development starts in the
North
(FY16) East North South Mid-West Total East North South Mid-West Total
Rents for completed & stabilised logistics (RMB/sq m/day) 1.11 1.38 1.08 0.97 1.14
Completed area (mn sq m) 7.8 2.8 1.4 3.0 14.9 52% 18% 9% 20% 100%
Pro-rata completed area (mn sq m) 3.8 1.4 0.7 1.5 7.4 51% 18% 10% 20% 100%
Pro-rata development starts (mn sq m) 1.0 0.2 0.1 0.4 1.7 59% 12% 6% 23% 100%
Pro-rata land acquired for future devt (mn sq m) 1.0 0.2 0.2 0.7 2.1 47% 9% 8% 35% 100%
Source: Company data, Credit Suisse estimates

Occupancies to trend lower on contributions from pre-stabilised properties


GLP classifies its properties as stabilised upon the earlier of: (1) reaching 87% lease ratio;
or (2) one year after completion. We note that lease ratios of stabilised properties in China
have been on a decline of late, and highlight further downside risks to occupancies, given
that a sizeable share of pre-stabilised properties are expected to come on-stream.
As at 4Q FY16, pre-stabilised properties amount to 2.5 mn sq m, from an average of 0.6
mn sq m prior to FY14; likely due to the challenging leasing environment. We understand
that properties on average require 12 months to be leased up post-completion compared
to 3-9 months in prior years.

Figure 72: Lease ratios of stabilised properties Figure 73: …with a sizeable share of pre-stabilised
historically at c.90%, although this has declined of properties likely to come on-stream
late…
92% (GFA mn sqm)
14.0
91%
90% 12.0

89% 10.0
88%
8.0
87%
6.0
86%
85% 4.0

84% 2.0
83%
0.0
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17

1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17

Lease ratio Completed & stabilised Completed & pre-stabilised

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Downside risks to consensus estimates


While GLP's earnings growth will be supported by its pipeline of completions, we believe
there is downside risks to consensus estimates, with our FY17-19E core PATMI estimates
3-17% below consensus expectations. Our FY17E core PATMI estimate of US$229 mn is
17% below consensus expectations, and this would imply earnings decline of 5% from
FY16 vs consensus expectations of an 15% earnings improvement.

Global Logistic Properties


(GLPL.SI / GLP SP) 29
24 August 2016

Figure 74: Our FY17E core PATMI estimate is 17% below consensus
(US$ mn)
350.0
320.4
301.7 306.5
300.0 281.5
276.0

250.0 240.9
229.2

200.0

150.0

100.0
FY16 FY17E FY18E FY19E
CS core PATMI Consensus PATMI

Source: Company data, Bloomberg, Credit Suisse estimates

We expect only modest rental growth rate of 2% in China, with occupancies expected to
trend lower over the next three years:
Figure 75: CS' rental growth and occupancy estimates
Rent growth Occupancy
FY17E FY18E FY19E FY17E FY18E FY19E
China 2.0% 2.0% 2.0% 85% 83% 82%
Japan 0.8% 0.8% 0.8% 99% 99% 99%
Brazil 0.4% 0.4% 0.4% 89% 89% 89%
US 4.0% 4.0% 4.0% 94% 94% 94%
Source: Company data, Credit Suisse estimates

Could disappoint on development starts and completions—again


We believe GLP could Given the slowing demand environment, we believe there is now an even greater need to
disappoint on take a more targeted approach to development starts, especially with occupancies at its
development starts current properties, on growing signs of weakness. We believe GLP could disappoint on
again. We expect only development starts again, and expect only 2.2 mn sq m of starts in FY17E vs
2.2 mn sq m of starts in management guidance of 2.6 mn sq m.
FY17E vs management
guidance of 2.6 mn sq m GLP is already targeting to complete 2.5 mn sq m of facilities in FY17E, implying growth of
17.6% from the FY16 levels. We estimated that the growth in leased logistics facilities of
GLP was only 1.5 mn sq m in FY16, a moderation from FY15 levels of 2.0 mn sq m in
FY15. Given further signs of a slowdown in China, we believe either occupancies or
development starts will likely disappoint.

Global Logistic Properties


(GLPL.SI / GLP SP) 30
24 August 2016

Figure 76: China development starts (100% basis) Figure 77: China development completions (100%
basis)
3.5 3.3 3.0
3.0
2.5
3.0 2.5 2.4
2.5 2.6 2.2
2.5 2.0
2.0 CS estimates:
2.1 2.4
2.0
1.7 CS estimates:
1.5
2.2 1.2
1.5 1.2 1.0
1.0
1.0
0.6
0.5 0.5

0.0 0.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17F FY11 FY12 FY13 FY14 FY15 FY16 FY17F

China development starts (mn sqm) China development completions (mn sqm)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Historical PATMI ex-reval and NAV growth flat, though FX has a role to play
We believe a key gripe amongst investors is the lack of earnings growth at GLP. While
management highlighted that GLP's headline PATMI jumped 48% YoY in FY15, FY16
PATMI of US$719 mn remains relatively unchanged from FY11 levels.
Excluding the impact from revaluations, PATMI ex-revals has remained lacklustre, and this
is in part due to the expansion of GLP's funds platform, which has resulted in a dilution of
its stake in Japan through the formation of GLP J-REIT and the dilution in its China
properties through its China consortium stake sale.

Figure 78: Headline PATMI remained relatively Figure 79: …with PATMI ex-revals expected to
unchanged since FY11… remain below FY12-13 levels over the next few years
(US$ mn) (US$ mn)
800 400
706 719 350
684 685
700 350
314 306
606
600 576 300 279 281
541 530
486 247 241
500 250 229
201
400 200

300 150

200 100

100 50

- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Management believes that its mark-to-market treatment for development completions,


which it terms as value creation, is not fully appreciated. However, we highlight that based
on its annual report disclosures, EBIT excluding revaluation is the key metric used by
management to measure performance, as "management believes that such information is

Global Logistic Properties


(GLPL.SI / GLP SP) 31
24 August 2016

the most relevant in evaluating the results of these segments relative to other entities that
operate within the logistics industry".
On this front, we note that FY16 EBIT ex-revaluation was supported by contribution from
the US, as a result of syndication gains in US Income Partners I and the inclusion of
results of GLP US Income Partners II acquired in November 2015, and share of results of
GLP US Income Partners I for FY16 prior to full syndication. While we believe EBIT ex-
reval will continue to grow given its pipeline of project completions, we are less sanguine
on earnings growth prospects in FY17E.

Figure 80: EBIT ex-revaluations (US$ mn) Figure 81: Growth in EBIT and PATMI ex-revals in
FY16 largely due to contributions from the US
(US$ mn) (US$ mn)
700
800.0 597
715 600
700.0 643
500 160
597
600.0 574 391
400
484
500.0 300
423 411 241
391 201
400.0 367 200 395 436 89

300.0 100 202


151
0 -1
200.0 -4
-100
100.0 FY15 FY16 FY15 FY16

- EBIT ex-reval PATMI ex-reval


FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E GLP ex-US US

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

We believe that as profitability has been slow to come through historically, investors will
look towards NAV growth as an indication of the value creation potential of a company. On
this front however, NAV has been flat at the c.US$1.80-1.90 level since FY13.
GLP's NAV has been flat Negative currency translation impact does have a significant role to play; excluding the impact
at the c.US$1.80-1.90 of currency translation, NAV per share as at FY16 would have increased to US$2.10 vs
levels since FY13 US$1.87. However, given GLP's eponymous global exposure, we believe currency risks are
part and parcel of the risks and rewards of investing in overseas jurisdictions.

Global Logistic Properties


(GLPL.SI / GLP SP) 32
24 August 2016

Figure 82: NAV/share has been flattish since FY13 Figure 83: Although currency does have a certain
degree of impact
(US$) 2.50
2.00
2.10
1.80 1.98
1.94
1.60 2.00 1.84 1.84 1.81 1.87
1.77
1.691.68
1.40
1.20 1.441.44
1.50
1.00
0.80
0.60 1.00
0.40
0.20
0.50
0.00
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
0.00
FY11 FY12 FY13 FY14 FY15 FY16
FY11 FY12 FY13 FY14 FY15 FY16 FY17
NAV per share (USD) BVPS BVPS adj. for exchange differences

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

In FY16, China, Japan and Brazil accounted for 47%, 54% and 4% of PATMI ex-reval
(does not sum to 100% due to the "corporate" segment) and 57%, 25% and 5% of
reported NAV (assuming GLP's 10% equity stake in GLP US Income Partners II),
respectively.
While GLP will likely benefit from the significant appreciation of the Yen in recent months,
we expect the continued depreciation of the Yuan to pose continued headwinds for the
group's key geographic region of China.
Further depreciation of Figure 84: CS exchange rate expectations
the Yuan to pose 2010 2011 2012 2013 2014 2015 2016E 2017E
continued headwinds for USD/CNY 6.6 6.3 6.2 6.1 6.2 6.5 6.8 7.1
China USD/JPY 81.1 76.9 86.8 105.3 119.8 120.2 98.3 95.0
USD/BRL 1.7 1.9 2.0 2.3 2.7 3.9 3.4 4.0
Note: Exchange rates as at end of year.
Source: Company data, Bloomberg, Credit Suisse estimates.

Global Logistic Properties


(GLPL.SI / GLP SP) 33
24 August 2016

Catalysts lacking; initiate with


UNDERPERFORM
We believe the conceptualisation of GLP's investment merits was clear to investors during
its IPO back in 2010. GLP has since embarked aggressively on its funds platform and
diversified into Brazil and the US. While capital recycling is a necessary source of funds
given GLP's growth ambitions, we believe the derating in GLP is likely to persist near term,
given the uncertainty in the future direction of the company, with management now
exploring opportunities in Europe and the US.
While valuations are While valuations for GLP are undemanding, at 21% discount to RNAV and 0.73x P/B, we
undemanding, at 21% believe it will take time for it to be vindicated, unless management is able to deliver on
discount to RNAV and sustainable earnings and NAV growth going forward. Our TP implies 26x P/E, in line with
0.73x P/B, the market will historical averages; this is a result of the derating in ROEs of the company. While
need to see sustainable aggressive share buy-backs have created some share price support for GLP thus far, we
earnings and NAV believe the impact to be limited in the longer term, with future share price performance
growth going forward to likely to be more dependent on the future financial performance of the company.
rerate
Credit Suisse HOLT notes that while GLP’s CFROI ® recovered from its recent trough of
2.1% in FY15 to reach 3.2% in FY16, the stock is already priced for CFROI to reach a high
of 5.9% over the next five years. If CFROI remains at 4% over the next five years, its fair
value range of S$1.35 to S$1.47 represents downside risk of -20% to -30%.
Asset valuations are likely to be supported by broader cap rate compression in a low
interest rate environment. However, near-term earnings risks, uncertainty over the
strategic direction of the company and a lack of re-rating catalysts for the stock are likely
to result in downside risks. Hence, we initiate coverage on GLP with an
UNDERPERFORM rating and TP of S$1.65, implying 14% downside, based on a 32%
discount (1 sd below historical average) to our RNAV estimates.
We see little upside surprise through capital recycling, given that the earliest fund
promotes are only expected in FY22, while a potential China income fund and IPO of its
China HoldCo are unlikely to rerate the stock, but contribute to further downside risks to
future earnings instead.

Undemanding valuations, but market confidence


lacking
Unclear strategy could lead to wider discount
GLP's share price We believe the conceptualisation of GLP's investment merits was clear to investors during
performance trended its IPO back in 2010—investors would gain access to a market leader in modern logistics
downwards after it facilities in China and Japan, with a healthy mix of growth through China and a stable
entered Brazil and the source of cash flows and defensiveness through Japan.
US
November 2012 marked the shift away from GLP's key focus on China and Japan, with
the entry into Brazil's logistics market through the acquisition of the Prosperitas portfolio.
This was followed by a second acquisition in Brazil through the BR Properties acquisition
in October 2014.
Thereafter, GLP expanded its network to the United States in December 2014 with a co-
investment with GIC to acquire IndCor Properties, and thereafter with a second acquisition
of Industrial Income Trust's US logistics portfolio.
As can be seen in Figure 86, we note a negative share price performance in each
instance, following the entry into these new markets. With management exploring
opportunities in Europe and the US, we believe a further diversification into Europe could
similarly be taken negatively by the market. Hence, cyclical headwinds aside, we thus

Global Logistic Properties


(GLPL.SI / GLP SP) 34
24 August 2016

believe the derating of GLP is partly a structural issue as well, which will likely persist in
the near term owing to much uncertainty on the future direction of the company.

Figure 85: Negative share price performance following entry into new markets
104.0

102.0

100.0

98.0

96.0

94.0

92.0

90.0

88.0

86.0

84.0
T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T+11 T+12 T+13 T+14
1st entry into Brazil Acquisition of 2nd Brazil portfolio
1st entry into US Acquisition of 2nd US portfolio

Source: Company data, Credit Suisse estimates. Note: T = date of first announcement

We believe the closest comparable companies of GLP will be US-listed Prologis Inc (PLD)
and Australian-based Goodman Group (GMG), given the integrated nature of these
companies in the ownership, development and management of logistics facilities globally.

Figure 86: GLP's peer comparables


Developers Price Ratg TP Up/dn RNAV Disc to Mkt cap P/E (x) Yield ROE (%) P/B (x) Net debt to 6M ADT Equity free
(LC) (LC) % RNAV (%) (US$ mn) T+1 T+2 T+1 T+2 T+1 T equity (x) US$ mn float (%)
International 23.4 21.2 3.3 3.5 5.2 1.32 40.0
GLP SP Global Logistic Prop 1.92 U 1.65 (13.8) 2.43 -21.2 6,858 29.7 24.1 3.4 3.7 2.5 0.73 28.5 23.4 52.2
PLD US Prologis Inc 53.82 N 48.00 (10.8) 48.20 11.7 28,361 21.0 20.5 3.1 3.3 4.5 1.93 61.7 41.4 99.1
GMG AU Goodman Group 7.71 N 7.29 (5.4) 7.29 5.8 10,411 19.3 17.9 3.1 3.4 8.7 1.69 18.2 23.8 86.7
SGRO LN Segro 4.50 NC 4.45 (1.0) 4.13 8.9 4,464 23.6 22.3 3.6 3.7 5.1 0.93 51.8 9.2 96.8
Peers with China logistic exposure 25.5 23.6 2.3 2.4 8.1 1.86 38.2
152 HK Shenzhen International 11.84 O 16 35.1 12.91 -8.3 2,989 12.6 10.8 2.2 2.4 9.2 1.22 -11.9 4.2 42.0
925 HK Beijing Properties 0.48 NC n.a. n.a. 0.61 -20.9 419 n.m. n.m. 0.0 0.0 -2.7 0.77 36.5 0.1 34.5
600787 CH CMSTD 8.20 NC n.a. n.a. 4.29 91.1 2,704 29.6 26.5 0.5 0.5 7.5 2.03 12.7 23.9 37.4
200053 CH Shenzhen Chiwan 29.35 NC n.a. n.a. n.a. n.a. 873 64.3 60.2 0.2 0.2 n.m. 3.78 103.5 3.0 56.8
2202 HK Vanke-H 20.00 U 10.38 (48.1) 113.38 -82.4 3,392 9.6 8.9 4.0 4.3 17.6 2.28 20.4 33.0 100.0
MLT SP Mapletree Logistics Trust 1.05 N 1.12 6.7 1.04 0.7 1,935 11.6 11.4 6.9 7.0 8.8 1.05 68.3 3.2 60.1
Average 24.6 22.5 2.7 2.8 6.8 1.6 38.9
Note: O = Outperform, N = Neutral, U = Underperform, NC = Not Covered. Priced as of 23 August 2016.
Source: Company data, Bloomberg, IBES consensus estimates for NC companies, Credit Suisse estimates for covered companies

Valuations undemanding; but sustainable earnings and NAV growth still


lacking
Given the subjectivity in determining core earnings growth, we compared GLP's reported
PATMI to that of its peers, GMG and PLD. While GMG and PLD's earnings have more
than tripled over the last five years, GLP's earnings have only grown by 33% over the
same time period. Similarly, GLP's NAV has only grown by 14% over the past five years,
despite significant growth in its complete GFA of properties.
Global Logistic Properties
(GLPL.SI / GLP SP) 35
24 August 2016

Figure 87: GLP lagged its peers in headline Figure 88: Clear trend of NAV growth for GMG, with
earnings growth over the past five years GLP and PLD NAV little changed
350.0 180.0

312.2 170.0
300.0 166.1
285.5 160.0
250.0 150.0
140.0
200.0
130.0
150.0 120.0
133.0
114.1
100.0 110.0
107.4
100.0
50.0
90.0
0.0 80.0
T-4 T-3 T-2 T-1 T T-4 T-3 T-2 T-1 T

GLP GMG PLD GLP GMG PLD

Source: Company data, Credit Suisse estimates. Note: PLD earnings represented by FFO Source: Company data, Credit Suisse estimates

While valuations for GLP are undemanding at 21% discount to RNAV and 0.73x P/B, we
believe it will take time for GLP to be vindicated, unless management is able to deliver on
sustainable earnings and NAV growth going forward. Our TP implies 26x P/E, in line with
historical averages; this is a result of the derating in ROEs of the company.

Figure 89: Historical discount to RNAV Figure 90: Historical P/B


(%) 1.5
20 1.4
10 1.3
1.2
0 1.1
-6.9 1.0
-10
0.9
-20 -19.3
-21.2 0.8
-30 -31.6 0.7
0.6
-40
0.5
-50
Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16
Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16
Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16

GLP Prem/(disc) to RNAV Mean - (19.3)% ± 1 std GLP P/B Average: 1.0x + 1 std: 1.2x
- 1 std: 0.8x +2 std: 1.4x -2 std: 0.7x

Source: Company data, Thomson Reuters, Credit Suisse estimates Source: Company data, Thomson Reuters, Credit Suisse estimates

Global Logistic Properties


(GLPL.SI / GLP SP) 36
24 August 2016

Figure 91: Historical P/E Figure 92: Historical P/B vs ROE


47
1.4 5.5
43 1.3 5.0
39 1.2
4.5
35 1.1
31 1.0 4.0

27 0.9 3.5
0.8
23 3.0
0.7
19 2.5
0.6
15
0.5 2.0
Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16
Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16
Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16
GLP P/E Average: 26.5x + 1 std: 32.7x
- 1 std: 20.2x +2 std: 38.9x -2 std: 14.0x GLP P/B ROE (RHS)

Source: Company data, Thomson Reuters, Credit Suisse estimates Source: Company data, Thomson Reuters, Credit Suisse estimates

Limited share price support from buy-backs


GLP has been aggressively embarking on its share buy-back programme recently, having
bought back a cumulative 169.4 mn shares worth S$346 mn thus far. This represents
3.5% of total issued ex-treasury shares as at the date of the share buy-back resolution.
While this has created some share price support for GLP thus far, we believe the impact to
be limited in the longer term, with the future share price performance likely to be more
dependent on the future financial performance of the company.

Figure 93: Cumulative share buy-backs by GLP thus Figure 94: Limited share price support from buy-
far backs
No. of shares (mn) Average price (S$) Value of shares (S$
2.9
mn) Buy-backs: Buy-backs:
Jul 2016 12.7 1.85 23.5 Aug-Oct 15' May-Jul 16'
2.7
Jun 2016 32.1 1.80 57.7
May 2016 19.4 1.80 34.8 2.5

2016 64.2 1.81 116.0 2.3


Oct 2015 2.6 2.08 5.4
2.1
Sep 2015 38.8 2.04 79.2
Aug 2015 63.8 2.28 145.6 1.9

2015 105.2 2.19 230.1 1.7

1.5
Jul-15

Jul-16
Jan-15
Feb-15
Mar-15
Apr-15

Jun-15

Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16

Jun-16
May-15

Aug-15
Sep-15

May-16

Aug-16

GLP share price (S$)

Source: Company data, Bloomberg, Credit Suisse estimates Source: Company data, Bloomberg, Credit Suisse estimates

Could capital recycling surprise on the upside?


Fund expiries and earned promotes not expected in the next few years
Earliest fund expiries and While GLP does not disclose the specific fund lives of its various country specific funds,
capital recycling unlikely we understand that these generally range from seven to ten years. As such, we believe
to come through in the the earliest fund expiries and resultant capital recycling are unlikely to come through in the
next 2-3 years next two to three years.

Global Logistic Properties


(GLPL.SI / GLP SP) 37
24 August 2016

In addition to management fees, GLP also has the potential to enhance its returns from its
fund management platform through promotes. Based on GLP's FY15 annual report (not
provided in FY16), the NPV of estimated promotes amount to US$400 mn, assuming all
requisite triggers are satisfied. However, we highlight that the earliest promotes are only
expected in FY22, and are not expected to be a near-term catalyst for the company.
Figure 95: GLP fund management platform
Fund name Vintage Type Fund Investment Fund partners Total equity GLP Co-
management to-date commitment investment
AUM
CLF I Nov-13 Opportunistic US$3.0 bn US$1.8 bn Various US$1.5 bn 55.9%
CLF II Jul-15 Opportunistic US$7.0 bn US$0.0 bn Various US$3.7 bn 56.4%
Total China US$10.0 bn US$1.8 bn US$5.2 bn 56.3%
GLP Japan Development Venture I Sep-11 Opportunistic US$3.1 bn US$2.1 bn CPPIB US$1.3 bn 50.0%
GLP Japan Income Partners I Dec-11 Value-add US$1.2 bn US$1.2 bn CIC, CBRE US$400 mn 33.3%
GLP J-REIT Dec-12 Core US$4.3 bn US$4.3 bn Public US$1.8 bn 15.0%
GLP Japan Development Venture II Feb-16 Opportunistic US$2.3 bn US$100 mn CPPIB US$1.0 bn 50.0%
Total Japan US$10.9 bn US$7.7 bn US$4.5 bn 34.4%
GLP US Income Partners I Feb-15 Core US$8.3 bn US$8.3 bn GIC, CPPIB & Others US$3.2 bn 10.4%
GLP US Income Partners II Nov-15 Core US$4.7 bn US$4.7 bn China Life & Others US$2.0 bn 9.9%
Total US US$13.0 bn US$13.0 bn US$5.2 bn 10.2%
GLP Brazil Development Partners I Nov-12 Opportunistic US$1.0 bn US$600 mn CPPIB, GIC US$800 mn 40.0%
GLP Brazil Income Partners I Nov-12 Value-add US$800 mn US$800 mn CIC, CPPIB, GIC US$400 mn 34.2%
GLP Brazil Income Partners II Oct-14 Value-add US$800 mn US$700 mn CPPIB & Other Investor US$600 mn 40.0%
Total Brazil US$2.6 bn US$2.1 bn US$1.8 bn 38.2%
Total US$36.5 bn US$24.6 bn Various US$16.7 bn 32.0%
Source: Company data

China income fund and IPO of China HoldCo: Further downside risk to earnings?
As part of the terms of the partial divestment of GLP's China HoldCo to the consortium of
Chinese domestic institutions, the parties have agreed to work together to achieve a future
IPO of China Holdco, within three years of completion of the transaction. The transaction
was completed in two tranches, closing on 6 June 2014 and 24 September 2014; as a
We believe an IPO of result, we believe that an IPO of the China HoldCo would be a possibility in the next 12
China Holdco could months.
present further downside
However, while this could potentially bring one-off revaluation gains to GLP, given the cap
risks to GLP's earnings,
given the further dilution rate compression thus far and continued investor interest in the asset class, we believe
of GLP's interests in its this could present further downside risks to GLP's earnings, given the further dilution of
completed and stabilised GLP's interests in its completed and stabilised properties.
properties

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(GLPL.SI / GLP SP) 38
24 August 2016

Figure 96: Little share price outperformance Figure 97: Lower core earnings with J-REIT IPO and
following the GLP J-REIT IPO subsequent asset divestments
(1 Nov 12 = 100) (US$ mn)
108.0 400
106.0 340
350
104.0
102.0 300
100.0
250
98.0 194
Completion of 200 175
96.0
J-REIT IPO 158 158
94.0 Announcement 138 130
150
92.0 on establishment
of J-REIT
90.0 100
88.0
50
86.0
01/11/12

08/11/12

15/11/12

22/11/12

29/11/12

13/12/12

20/12/12
06/12/12

-
FY13 FY14 FY15 FY16

Japan EBIT ex-reval Japan PATMI ex-reval


GLP Straits Times Index

Source: Company data, Bloomberg, Credit Suisse estimates Source: Company data, Credit Suisse estimates

As seen in the prior episode with the formation of GLP J-REIT, we believe there has not
been a significant rerating of the company post the IPO, with lower core earnings following
subsequent divestment of stabilised assets to J-REIT instead.
Similarly, the formation of a China income fund in response to strong investor demand has
been another catalyst which has been flagged by management; though in its FY16
earnings call, management has highlighted that GLP is balancing its cash requirements for
capital recycling vs the timing of the fund. Given a slower pace of development starts, and
that GLP's net debt to assets of 24% remains comfortably below its target of 40%, we
believe a China income fund is unlikely to materialise in the near term. Similar to a
potential IPO of the China HoldCo, we believe the dilution impact to core earnings would
be an important implication for GLP.

Figure 98: NCI share of total net profits increased Figure 99: …with NCI now 30% of total net profits on
post China HoldCo stake sale… average
(US$ mn)
100%
400
90%
350 80%
300 70%
250 60%
50%
200
40%
150
30%
100
20%
50 10%
0 0%
1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17
1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

PATMI NCI PATMI NCI

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

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Initiate with UNDERPERFORM, TP of S$1.65


RNAV-based target price of S$1.65, implying 14% downside
Initiate with We have applied a 32% discount to our RNAV estimate of GLP (1 sd below historical
UNDERPERFORM, TP averages) to arrive at a TP of S$1.65. While asset valuations are likely to be supported by
of S$1.65 implying 14% broader cap rate compression in a low interest rate environment, we believe near-term
downside earnings risks, uncertainty over the strategic direction of the company and a lack of re-
rating catalysts for the stock are likely to result in downside risks. Hence, we initiate
coverage on GLP with an UNDERPERFORM rating and TP of S$1.65, implying 14%
downside from the current levels.
Key assumptions of our RNAV estimates are as follows:

■ Completed properties: based on cap rates of 6.5% (China), 5% (Japan), 9% (Brazil)


and 6% (US).

■ Properties under development and land held for future development: book value.

■ Development pipeline: based on 25% value creation margins, with discount rates of
11.5% (China), 7% (Japan) and 14% (Brazil).

■ Management fee business and corporate costs: based on a 12x earnings multiple
for management fee income vs 10x multiple for corporate costs, to reflect the scalability
of GLP's overheads.

■ Exchange rate assumptions: USD/CNY (6.59), USD/BRL (3.56), USD/JPY (104),


USD/SGD (1.37).

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Figure 100: CS RNAV estimate for GLP


Portfolio pro-rata valuation: US$ mn S$ mn S$/share % of GAV
China: 6,119 8,379 1.75 43%
- Completed properties 4,930 6,751 1.41 35%
- Under development 711 974 0.20 5%
- Land held for future development 478 654 0.14 3%

Japan: 3,879 5,310 1.11 27%


- Completed properties 3,576 4,897 1.02 25%
- Under development 302 414 0.09 2%
- Land held for future development - - - 0%

Brazil: 709 971 0.20 5%


- Completed properties 615 843 0.18 4%
- Under development 61 84 0.02 0%
- Land held for future development 33 45 0.01 0%

US: 963 1,319 0.27 7%


- Completed properties 963 1,319 0.27 7%
- Under development - - - 0%
- Land held for future development - - - 0%

Current portfolio 11,671 15,980 3.33 82%

Development pipeline: 1,878 2,571 0.54 13%


- China 1,150 1,575 0.33 8%
- Japan 695 951 0.20 5%
- Brazil 33 45 0.01 0%
- US - - - 0%

Management fee (12x multiple): 656 899 0.19 5%

Total GAV: 14,205 19,449 4.05 100%


- China 7,269 9,953 2.07 51%
- Japan 4,573 6,262 1.30 32%
- Brazil 743 1,017 0.21 5%
- US 963 1,319 0.27 7%
- Others 656 899 0.19 5%

Net debt (including perpetuals): (5,361) (7,340) (1.53)


Corporate costs (10x multiple): (322) (441) (0.09)

RNAV: 8,522 11,669 2.43 100%


- China 5,226 7,156 1.49 61%
- Japan 2,169 2,970 0.62 25%
- Brazil 47 64 0.01 1%
- US 745 1,021 0.21 9%
- Others 334 458 0.10 4%

Discount to RNAV: 32%


Target price: 1.65
Source: Company data, Credit Suisse estimates

Blue sky valuation: TP of S$2.49, 30% upside


Our blue sky valuation of S$2.49 factors in the following assumptions:

■ 50 bp cap rate compression across all its geographical markets.

■ 10% appreciation of GLP's operating currencies of CNY, JPY and BRL against USD.

■ GLP managing 25% higher completions than our base case estimates.

■ In such a scenario, we assume GLP trades up to its historical average discount to


RNAV of 19%.

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Grey sky valuation: TP of S$1.07, 44% downside


Our grey sky valuation of S$1.07 factors in the following assumptions:

■ 50 bp cap rate expansion across all its geographical markets.

■ 10% depreciation of GLP's operating currencies of CNY, JPY and BRL against USD.

■ GLP managing 25% less completions than our base case estimates.

■ In such a scenario, we assume GLP derates to its trough discount to RNAV of 45%.
A sensitivity of our TP to changes in asset valuation and currency expectations are as
follows:

Figure 101: Sensitivity of our TP to changes in asset Figure 102: Sensitivity of our TP to changes in FX
values
Appreciation/(depreciation) of USD vs. operating currencies
Increase/(decrease) in asset valuations in China
CNY, JPY & BRL
-15% -10% -5% 0% 5% 10% 15% -15% -10% -5% 0% 5% 10% 15%
-15% 1.31 1.38 1.45 1.52 1.59 1.66 1.73 -15% 1.67 1.57 1.48 1.40 1.33 1.27 1.21
Increase / (decrease) in

(depreciation) of USD
-10% 1.35 1.42 1.49 1.56 1.63 1.70 1.78
asset valuations in

-10% 1.77 1.66 1.57 1.49 1.41 1.34 1.28

Appreciation /
-5% 1.40 1.47 1.54 1.61 1.68 1.75 1.82 -5% 1.86 1.76 1.66 1.57 1.49 1.42 1.35

vs. SGD
Japan

0% 1.44 1.51 1.58 1.65 1.72 1.79 1.86 0% 1.96 1.85 1.75 1.65 1.57 1.49 1.42
5% 1.49 1.56 1.63 1.70 1.77 1.84 1.91 5% 2.06 1.94 1.83 1.74 1.65 1.57 1.49
10% 1.53 1.60 1.67 1.74 1.81 1.88 1.95 10% 2.16 2.03 1.92 1.82 1.73 1.64 1.57
15% 1.57 1.64 1.72 1.79 1.86 1.93 2.00 15% 2.26 2.12 2.01 1.90 1.80 1.72 1.64
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 103: Asset value breakdown by type Figure 104: RNAV breakdown by country
Management Others
fee 5%
5%
Brazil
US
1%
8%
Land held for Development
future pipeline
development 13%
4%

Under
development Japan
7% 26%
China
Completed 60%
properties
71%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

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Key risks
Key management personnel risk
Led by CEO Ming Z. Mei, GLP is highly dependent on its key management personnel (see
Appendix) and other senior managers of the company, in our view. Given the importance
of management know-how and relationships, against intensive competition in the sector,
the inability to attract and retain key management and senior managers could potentially
impact the financial performance and market perception of GLP.
This is partially mitigated by the company’s long-term incentive compensation packages,
whereby senior management has direct interest in the company with a stock-based
performance programme, which allows greater alignment of interests.
Currency risk
By virtue of its business operations in China, Japan and Brazil, GLP is exposed to
currency risks in these three markets. Moreover, GLP's presentation currency is in USD,
and hence currency fluctuations could impact its reported financial results through
currency translation. While management adopts natural hedging by borrowing in local
currencies, and uses foreign exchange contracts to hedge and minimise net foreign
exchange exposures, this may not be adequate in mitigating any impact from unfavourable
currency fluctuations.
We have adopted CS economists' exchange rate expectations in our forecasts, but
assuming a further 10% depreciation of the CNY, JPY and BRL against the USD, our TP
for GLP declines by 9.7%, while our PATMI estimate for FY17E will decline by 7.5%.
Competition risk
Although GLP has market leadership in China, Japan, Brazil and the US, we note that the
logistics market is generally very fragmented, and key players often collectively only
command a small fraction of the entire market. We expect competitive intensity to continue
increasing in its key market of China in particular, given the significant amount of new
investments made into the sector by established logistics players and new entrants alike.
In our view, the barriers to entry may not be as significant, given the relative ease of
constructing a typical logistics warehouse. Further, local and regional competitors may
have equal or better local knowledge and relationships and access to funding and land at
reasonable prices, hence eroding GLP's current market leadership position and impacting
GLP’s rental and occupancy outlook.
Access to land risk
By virtue of its role as a developer of logistics facilities, continued access to suitable land
in ideal locations close to transportation nodes, and at appropriate prices is a key risk for
the company. Greater competition in the market, in conjunction with a general reluctance
by provincial governments in granting land for industrial use has resulted in tougher
competition for land in China. This is partially mitigated by GLP's sizeable land reserves of
12.1 mn sq m, and strategic relationships to gain access to land; although pricing and
attractiveness of the location remains key.
Regulatory risk
GLP’s development assets are located in China, Japan and in Brazil and its operations will
be subject to provincial and government approvals in the respective countries. In addition
to various licences and permits to operate, we understand that obtaining the various
permits, licences, certificates and other approvals from various administrative authorities in
China during various stages of construction is an intricate and convoluted process. This
may thus contribute to delays in GLP's development starts and completion targets.

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Financing risk
Property development is a capital intensive business, which requires significant upfront
capital expenditure. Adequate financing at attractive rates to fund land acquisitions and
construction costs prior to the leasing out of the completed facility in a timely manner is an
important determinant of the future returns profile of the company. Given its scale of
operations and low market interest rate environment, GLP has thus far been able to
secure attractive funding costs to finance its development build-out, with group weighted
average interest costs of 2.9% in FY16.
Adverse economic conditions risk
While some of its leases may have imputed step-up clauses, in the event of adverse
economic conditions, this could impact GLP’s portfolio occupancy and hinder its ability to
raise rents. As the logistics facilities market is highly sensitive to economic conditions,
GLP's growth is thus dependent on continued economic growth, in particular the growth in
e-commerce and 3PL markets and the general consumer economy.
Figure 105: Key macro-economic indicators for GLP’s key markets
China 2010 2011 2012 2013 2014 2015 2016E 2017E
Real GDP growth (%) 10.3 9.2 7.7 7.7 7.3 6.9 6.5 6.5
GDP per capita (USD) 4,533.6 5,540.4 6,269.8 7,021.5 7,547.2 7,794.4 7,870.5 7,949.9
Growth in real private consumption (%) 9.5 11.5 8.3 7.0 7.9 8.2 7.7 7.8
Growth in real gross fixed capital formation (%) 12.4 8.5 8.8 9.1 6.9 6.1 5.2 5.1
CPI inflation (%) -0.7 5.4 2.6 2.6 2.0 1.4 2.0 1.7
Japan 2010 2011 2012 2013 2014 2015 2016E 2017E
Real GDP growth (%) 4.7 -0.5 1.7 1.4 0.0 0.5 0.4 0.0
Growth in real private consumption (%) 2.8 0.3 2.3 1.7 -0.9 -1.3 0.1 0.1
Core CPI inflation (%) -0.7 -0.3 0.0 0.4 2.7 0.6 -0.3 0.0
Brazil 2010 2011 2012 2013 2014 2015 2016E 2017E
Real GDP growth (%) 7.6 3.9 1.9 3.0 0.1 -3.8 -3.5 0.5
GDP per capita (USD) 11,298.0 13,233.0 12,338.0 12,239.0 11,915.0 8,655.0 8,224.0 8,521.0
Growth in real private consumption (%) 6.4 4.7 3.5 3.5 1.3 -4.0 -4.3 -0.3
Growth in real gross fixed capital formation (%) 17.8 6.7 0.8 5.8 -4.5 -14.1 -11.9 1.1
CPI inflation (%) 5.0 6.6 5.4 6.2 6.3 9.0 9.0 6.3
Source: Company data, Credit Suisse estimates

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Appendix
The origins of GLP
In December 2008, Prologis, a leading global provider of distribution facilities, announced
the divestment of part of its operations in China and property fund interests in Japan to
GIC Real Estate (GIC RE), the real estate investment company of the Government of
Singapore Investment Corporation (GIC). The total cash consideration was US$1.3 bn,
plus liabilities assumed as part of the transaction. Prologis had to divest the assets at a 4-
6% loss versus book value, in order to de-lever its balance sheet, relieve near-term
refinancing pressure and enhance liquidity.
GIC RE had previously worked with Prologis on several occasions including the creation of
the Prologis Japan Properties Fund I in 2002 and later the Prologis Japan Properties Fund
II in September 2005. GIC RE had also invested in the Prologis European Properties Fund
earlier. Meanwhile in China, GIC RE formed a China Fund with Prologis to invest in China
logistics facilities developed by a third party.
Figure 106: Summary of Prologis’ divestment to GIC Real Estate
China
 20.7 mn sq ft of completed properties and properties under development with a total expected investment of US$861 mn (including a remaining funding
requirement of US$223 mn for properties under development) that were 45.5% leased
 Prologis’ interest in five China JVs and one property fund, of which the company's share was 4.4 mn sq ft with a total investment of US$184 mn (including a
remaining funding requirement of US$32 mn for properties under development) that were 69 leased
 30% stake in SZITIC CP, a retail joint venture, with a US$53 mn book value
 713 acres of land with a carrying value of US$213 mn
Japan
 4.5 mn sq ft of completed facilities and currently in lease with a total investment of US$687 mn that was 43.7% leased
 4.2 mn sq ft of facilities under development with a total expected investment of US$681 mn (including a remaining funding requirement of US$194 mn) that
was 2.6% leased.
 64 acres of land with a carrying value of US$173 mn
Source: Company data

Subsequently, GLP was formed with Jeff Schwartz (ex-chairman of the executive
committee) and Ming Z. Mei (the current CEO) to manage these assets.

Key management
Ming Z Mei, Chief Executive Officer, Chairman of the Executive
Committee & Executive Director
Mr Mei was formerly the Chief Executive Officer of Prologis for China and Asian Emerging
Markets. He opened Prologis’ first China office in 2003 and built up its China operations to
its current scale.
Yoshiyuki Chosa, President, GLP Japan
Mr Chosa is President of GLP Japan and leads the company’s business in Japan. He was
formerly senior vice president of investment management at Prologis Japan where he
launched and expanded its acquisition business.
Mauro Dias, President, GLP Brazil
Mr Dias joined the company in 2014 and leads the company’s business in Brazil. He was
formerly CEO of Synergy Group’s shipyards and shipping divisions and, prior to that, CEO
of Log-In Logistica Intermodal, a Brazilian logistics company.

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Higashi Michihiro, Chief Strategy Officer, GLP China


Mr Michihiro joined the company in 2006, and is in charge of overseeing and setting the
investment strategy for GLP China. He is also responsible for managing and establishing
strategic alliances in China.
Victor Mok, Co-President, GLP China
Mr Mok is responsible for the commercial and operational functions for the China
business. Mr Mok also spearheads strategic collaboration with GLP key partners such as
China Material Storage and Transportation Corporation (CMSTD). He was formerly Chief
Commercial Officer of GLP China.
Stephen Schutte, Chief Operating Officer
Mr Schutte is responsible for global operations, legal services, strategic risk management,
IT, human resources and key initiatives to enhance shareholder value, including investor
relations. He also focuses on developing the company’s future strategy, new market
entries, large portfolio transactions and global investment funds.
Charles Sullivan, President & Chief Operating Officer, GLP US
Mr Sullivan joined GLP as a part of its acquisition of IndCor Properties where he had been
serving on the executive management team. Prior to IndCor, Mr Sullivan was Head of
Global Operations at Prologis.
Kazuhiro Tsutsumi, Global Treasurer & Chief Financial Officer, GLP
Japan
Mr Tsutsumi joined the company in 2012 and is responsible for management of the
company’s capital, cash and treasury risks and oversees treasury activities of each
country.
Ralf Wessel, Head of Fund Management & Business Development
Mr Wessel is responsible for managing and growing GLP’s fund management platform,
which currently has US$34 bn of assets under management. He also manages long-
standing relationships with institutional investors.
Heather Xie, Chief Financial Officer
Ms. Xie is responsible for group-wide corporate finance including treasury, financial
planning and reporting, controllership, tax and other financial services. Ms. Xie
spearheads GLP’s financial strategy and oversees the company’s capital structure.
Kent Yang, Senior Advisor, GLP China
Mr Yang joined the company in 2005 and was formerly president of GLP China.
Previously, Mr Yang served as chief operating officer for Prologis China.
Teresa Zhuge, Co-President, GLP China
Ms. Zhuge is responsible for the finance, investment-related and human resource
functions for the China business. Ms. Zhuge oversees fund management, capital
deployment and leads negotiations for GLP China’s acquisitions and strategic projects.
She was formerly Chief Financial Officer of GLP China.

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Key events
Figure 107: A timeline of key events since GLP's IPO in 2010
Announcement Event
date
18-Oct-10 IPO on SGX. Issue price of S$1.96, with GIC owning 56.8% after IPO, and 51% after over-allotment option
1-Sep-11 Formation of 50:50 Japan Development Fund with CPPIB
19-Dec-11 Formation of 50:50 JV with CIC. Acquisition of 15 modern logistics facilities from LaSalle for ¥122.6 bn
5-Oct-12 Stake reduction in JV with CIC. Sold 16.7% stake to CBRE for ¥7.6 bn
14-Nov-12 First entry into Brazil. Through two JVs with CPPIB, CIC and GIC to acquire portfolio worth US$1.45 bn. GLP equity contribution of US$334 mn.
21-Dec-12 Listing of GLP J-REIT. GLP contributing 30 assets worth US$2.6 bn and retaining a 15% interest
18-Jan-13 Divestment of three properties to GLP J-REIT for US$142 mn
4-Feb-13 Expansion of Japan Development Venture with CPPIB to US$2.2 bn
25-Feb-13 GIC sells down stake of S$1.25 bn at bottom-end of S$2.60-2.66 range. GIC stake reduced from 49% to 36%
3-Sep-13 Divestment of seven properties by GLP Japan Income Partners I to GLP J-REIT for US$277 mn
3-Sep-13 Divestment of two properties to GLP J-REIT for US$287 mn
14-Nov-13 Launching of US$ 3bn China Logistics Fund. GLP to retain 56% stake
18-Feb-14 Announcement on China HoldCo stake sale to China consortium. Consortium partners to invest up to US$2.5 bn
6-Mar-14 Proposed acquisition of 34 assets located in Brazil from BR Properties for US$1.4 bn
6-Jun-14 First tranche of China consortium agreement completed. US$1.48 bn investment (24.4% stake) in China HoldCo, US$163 mn (1.5% stake) in GLP ListCo
11-Aug-14 Divestment of nine properties to GLP J-REIT for US$529 mn
24-Sep-14 Second tranche of China consortium agreement completed. US$875 mn investment in China HoldCo, with consortium partners now holding 33.8% stake
in total
28-Oct-14 Formation of US$1.1 bn GLP Brazil Income Partners II with CPPIB and North American Institutional Investor, expansion of GLP Brazil Development
Partners I by US$0.4 bn
29-Oct-14 Expansion of Japan Development Venture with CPPIB
8-Oct-14 First entry into US. Co-investing with GIC to acquire US$8.1 bn US logistics portfolio. GLP initial stake of 55%
24-Oct-15 Divestment of GLP Kobe-Nishi owned by GLP Japan Development Venture to GLP J-REIT for US$60 mn
21-May-15 Sale of 351.6 mn shares (7.3%) owned by Lone Pine to Hillhouse at S$2.74
28-May-15 Announcement on stake syndication of GLP US Income Partners I, GLP stake to be reduced to 10% on 27 October 2015
21-Jul-15 Establishment of US$7 bn CLF II. GLP China to hold 56% stake
29-Jul-15 Acquisition of US$4.55 bn US logistics portfolio from Industrial Income Trust (IIT). GLP initial stake of 100%
10-Aug-15 Divestment of five properties to GLP J-REIT for US$306 mn
17-Feb-16 GLP and CPPIB establish Japan Development Venture II
5-Apr-16 GLP completes syndication of 66% stake in US Income Partners II
30-Jun-16 Sale of 50% share of GLP・MFLP Ichikawa Shiohama to GLP J-REIT for US$151 mn
12-Jul-16 Announcement on successful syndication of 24% stake in US Income Partners II. Expected to close in 2Q FY17
16-Aug-16 Divestment of four properties to GLP J-REIT for US$420 mn
Source: Company data, Credit Suisse estimates

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Corporate snapshot
Figure 108: GLP's corporate structure as at FY16

Source: Company data

Figure 109: Revenues by type (FY11 to FY16) Figure 110: Revenues by country (FY11 to FY16)
(US$ mn) (US$ mn)
900 900
777 777
800 800
708 708
700 642 625 700 642 625
600 566 600 566
474 474
500 500

400 400

300 300

200 200

100 100

0 0
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
Rental and related income Management fee income Dividend income received China Japan US Brazil

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

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Figure 111: Reported EBIT (FY11 to FY16) Figure 112: EBIT excluding revaluations (FY11 to
FY16)
(US$ mn) (US$ mn)
1,600 1,494 800

1,400 700 597

1,200 600
484
946 910 500 423 411 391
1,000 908
367
400
800 701
300
600
367 200
400
100
200 0
0 FY11 FY12 FY13 FY14 FY15 FY16
-100
FY11 FY12 FY13 FY14 FY15 FY16
-200 -200

China Japan US Brazil Others China Japan US Brazil Others

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 113: Total assets by country (FY16) Figure 114: Reported NAV by country (FY16)
Brazil Corporate Corporate
2% 1% 6%

Brazil
5%
US US
23% 7%

Japan China
China 57%
Japan 59% 25%
15%

Source: Company data, Credit Suisse estimates Note: Pro-forma NAV assuming GLP’s 10% equity stake in GLP US Income Partners II.
Source: Company data, Credit Suisse estimates.

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Credit Suisse HOLT view on GLP


Credit Suisse HOLT is not part of Equity Research
GLP’s CFROI® recovered from its recent trough of 2.1% in 2014 (FY3/2015) to reach
3.2% in 2015. While current consensus earnings suggest further improvements in 2016
and 2017, the stock is already priced for CFROI to reach a high of 5.9% over the next five
years.

Figure 115: GLP’s market implied CFROI appears demanding relative to its own
history

Source: Credit Suisse HOLT

Compared to global logistics peers such as Prologis (PLD) and Goodman Group (GMG),
GLP also has a lower CFROI level. Its market implied expectation relative to consensus
forecast is also among the highest in the industry.

Figure 116: Low CFROI, high implied expectations relative to peers

Source: Credit Suisse HOLT

HOLT estimates that if The HOLT sensitivity table below shows that a substantial upside scenario for GLP is only
CFROI remains at 4% possible with a best-in-class CFROI level of 7-8% (vs 3.7% forecast for 2016) and mid-
over the next five years, single digit asset growth rates. Conversely, if CFROI remains at 4% over the next five
GLP's fair value (S$1.35 years, its fair value range of S$1.35 to S$1.47 represents downside risk of -20% to -30%.
to S$1.47) implies
downside risk of -20% to
-30%

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Figure 117: HOLT fair value sensitivity to T+5 CFROI and asset growth rates

Source: Credit Suisse HOLT

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Companies Mentioned (Price as of 22-Aug-2016)


Alibaba Group Holding Limited (BABA.N, $95.65)
BPHL (0925.HK, HK$0.485)
CMST (600787.SS, Rmb8.2)
China Vanke A (000002.SZ, Rmb24.7)
China Vanke H (2202.HK, HK$20.6)
Chiwan Base (200053.SZ, HK$28.59)
GLP J-REIT (3281.T, ¥122,300)
Global Logistic Properties (GLPL.SI, S$1.9, UNDERPERFORM, TP S$1.65)
Goodman Group (GMG.AX, A$7.59)
JD.com, Inc. (JD.OQ, $25.77)
Mapletree Logistics Trust (MAPL.SI, S$1.08)
Prologis, Inc. (PLD.N, $53.6)
Shenzhen International Holdings Limited (0152.HK, HK$11.74)
Vipshop Holdings Limited (VIPS.N, $15.5)
Wal-Mart Stores, Inc. (WMT.N, $72.7)

Disclosure Appendix
Important Global Disclosures
Louis Chua, CFA, and Nicholas Teh each certify, with respect to the companies or securities that the individual analyzes, that (1) the views
expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Global Logistic Properties (GLPL.SI)

GLPL.SI Closing Price Target Price


Date (S$) (S$) Rating
03-Sep-13 2.81 3.15 O
14-Nov-13 3.00 3.15 N
05-Feb-15 2.48 3.08
09-Apr-15 2.66 *
14-May-15 2.70 3.08 N
28-Oct-15 2.32 NR
* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM
N EU T RA L
N O T RA T ED

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total revenues, a portion of which are generated by Credit Suisse's investment banking activities
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*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
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view on the equity security of the company or related products.

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Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
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Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 54% (50% banking clients)
Neutral/Hold* 30% (23% banking clients)
Underperform/Sell* 16% (44% banking clients)
Restricted 0%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
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Target Price and Rating


Valuation Methodology and Risks: (12 months) for Global Logistic Properties (GLPL.SI)
Method: Our target price of S$1.65 for Global Logistic Properties is based on applying a 32% discount to our RNAV estimates. Completed
properties are valued based on cap rates of 6.5% (China), 5% (Japan), 9% (Brazil) and 6% (US), while properties under development are
based on book value, with a 25% value creation margin assumed for its development pipeline. We value GLP's management fee business
on a 12x earnings multiple and corporate costs at 10x reflecting the scalability of GLP's corporate overheads. Near-term earnings risks,
uncertainty over GLP's strategic direction and a lack of rerating catalysts are likely to result in downside risk. Hence, we have an
UNDERPERFORM rating on the stock.
Risk: Key risks to our target price of S$1.65 and UNDERPERFORM rating for Global Logistic Properties are: (1) currency fluctuations in the key
geographies of CNY and JPY as GLP's accounts are quoted in USD; (2) global economic growth; (3) pace of supply growth; and (4)
regulatory risks which may impact access to land and capital.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (000002.SZ, 0152.HK, 2202.HK, BABA.N, MAPL.SI, PLD.N, VIPS.N, WMT.N) currently is, or was during the 12-month period
preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (BABA.N, PLD.N, WMT.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (BABA.N, PLD.N, WMT.N) within the past 12
months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (000002.SZ, 0152.HK,
2202.HK, BABA.N, GMG.AX, JD.OQ, MAPL.SI, PLD.N, VIPS.N, WMT.N) within the next 3 months.
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This research report is authored by:
Credit Suisse AG, Singapore Branch ................................................................................................ Louis Chua, CFA ; Nicholas Teh ; Daniel Lim
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Credit Suisse AG, Singapore Branch ................................................................................................ Louis Chua, CFA ; Nicholas Teh ; Daniel Lim
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